Want to build a global portfolio? Here’s how to invest in foreign stocks

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August 21, 2021 8:15 AM

Apart from the diversification through investments in domestic stocks, investing in foreign stocks would provide greater stability in a portfolio through geographical diversification.

global portfolio, how to invest in foreign stocks, market risks, diversification, domestic stocks, geographical diversification, direct investment, ETF, International FundsTo reduce equity risk, it's very important to diversify by investing in a number of stocks instead of investing just in one stock.

Investments in stocks are considered risky, but produce higher return than fixed-return instruments in the long run. To reduce the risk, it’s very important to diversify by investing in a number of stocks instead of investing just in one stock.

Apart from the diversification through investments in domestic stocks, investing in foreign stocks would provide greater stability in a portfolio through geographical diversification.

Why to Invest Internationally?

“When you invest in equities, you are investing your money in businesses which are listed in the stock exchange directly or through the route of mutual funds. Similarly, there are many companies globally, which are attractive and competitive which offer a business and growth prospect for your investment . They may be an extremely good brand or a company that is not available in India. These are large global corporations, hugely profitable, scalable and they have global operations as an opportunity to offer for an investor. We have all heard of the popular term: FAANG ( these are tech giants : Facebook, Amazon, Apple, Netflix,and Google) similarly other fast growing companies Microsoft, Nvidia, Shopify, Tesla, Tencent, Ping An and many other well known companies. These are all companies that an investor would like to invest in but didn’t know how to,” said Santosh Joseph, Founder and Managing Partner, Germinate Investor Services LLP.

Investment Options

“There are three ways to invest internationally – one, you can invest directly in international listed companies/equities, two, you can invest in an index/ETF of a country, three, you can invest in a fund – Diversified or thematic . Additionally, an investor can also invest based on geography. For example, one can invest in North America, South America, China or in emerging markets. These are dominant themes that play out for Indian investors who would like to consider investing internationally,” said Joseph.

Investing Directly

“There are online sites that allow you to invest directly in these international stocks, but you have to remember that sometimes it’s not always easy because of multiple reasons. One, all these stocks are in dollar terms. When you convert the dollar into Indian rupees, it becomes very expensive. For example, an Amazon share today costs about $3200. An investor will spend over Rs 2 lakh just for a single share of Amazon,” said Joseph.

Investing through ETFs

“The second way to invest is through ETFs offered through mutual funds. ETF requires a demat and trading account,” said Joseph, adding, “However the simplest and easiest is through feeder or funds of fund route that invest in companies based outside of India. They also offer index funds too in this route that invest in foreign indices such as S&P 500, NASDAQ, Russell, Dow Jones -etc. You also have the options of Gold, commodities, technology including energy and resources funds also differentiated by geography. An investor doesn’t necessarily have to worry because a lot of mutual funds already have multiple themes. It’s as easy as investing in any mutual funds domestically.”

Investing through International Funds

I”nvesting in international funds (fund of funds) has few advantages. One, you don’t need to have a Demat account and trading account. Two, it’s very easy to invest because the investor doesn’t have to set up an international account or worry about currency swings. Three, you don’t have to worry about the limit that you can invest because there is an annual limit via LRS (Liberalized Remittance Scheme) if you invest directly, But if you are investing in funds which are already available by Indian mutual fund companies, you don’t have to even worry about that,” said Joseph.

“The regular features of SIP, STP and lump sum investing makes investing convenient,” he added.

Diversification is an investor’s best friend in times of volatility. Here’s why

How to Invest

Different investment intermediaries in India have collaborated with their counterparts in other countries to provide investors opportunities to invest in foreign stocks.

“Investing in foreign stocks and ETFs has become easier than before. Currently, a majority of brokers offer investment opportunities in the US markets, as they are the largest and also popular,” said Vamsi Krishna, Head – Product and Marketing, Axis Securities.

“Investing in foreign stocks and ETFs has become easier than before. Currently, the majority of the brokers offer investing in US markets, as they are the largest and popular,” said Vamsi Krishna, Head – Product and Marketing, Axis Securities.

“To invest in stocks and ETFs listed on NASDAQ and NYSE, investors have to open an account with a broker registered with the Securities and Exchange Commission (SEC). SEC is the regulatory body in the US, similar to SEBI in India,” Krishna added.

Explaining their offerings, Krishna said, “Axis Direct offers Global Investing through our partner Vested, an SEC registered investment advisor. Customers can login to our portal and open an account with Vested completely online by uploading their Aadhar Card and PAN Card copies. After the KYC is verified by the central team, customers can operate their account to transfer funds and buy stocks and ETFs. Under the liberalised remittance scheme (LRS), customers are allowed to transfer up to $2,50,000 abroad to invest (approx. Rs 1.8 crore). With Axis Direct’s Global Investing, customers can not only transact in US stocks like Amazon, Tesla or Google, but also get advice and support through model portfolios (Vests). Vests like SAAS and Moat have given over 28 per cent return in the last one year.”

Another leading investment intermediary – ICICI Securities – has recently announced the services on allowing their customers to invest in global equities. ICICI Securities has partnered with ‘Interactive Advisors’ and ‘Interactive Brokers LLC’ for this.

“Through these partnerships, the customers of ICICIdirect would now be able to invest in portfolios made up of US stocks and ETFs managed by Interactive Advisors, a US investment advisor, based on models constructed by renowned global fund managers like Global X- by Mirae Asset, State Street Global Advisors, Legg Mason (acquired by Franklin Templeton Investments), Wisdom Tree and other portfolio managers,” Anupam Guha, Head – Private Wealth Management, ICICI Securities.

“With this association with Interactive Brokers LLC, a United States-based online brokerage firm with multi-asset and multi geography trading capabilities, ICICI Securities will also provide opportunities to invest in exchanges from the United States, United Kingdom, Japan, Hong Kong, Germany and Singapore,” he added.

“It makes sense for an investor to consider the options already available- whether it is index, country specific, thematic specific or if an investor just wants a global play. Global exposure is a good way to diversify and get world market opportunities to benefit you. You get a chance to invest in global companies which may not be listed or present in India. Classic examples are Tesla, Amazon and Google and many more such giants,” said Joseph.

“Therefore, clearly there are significant benefits of investing in global markets. There are multiple opportunities through funds already present and available at the convenience and at the simplicity of investing in domestic mutual funds,” he added.

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