FAQs on international equity investing
1. What are some of the rules for Indians to invest in international equity?
As per the rules of Reserve Bank of India (RBI), under Liberalised Remittance Scheme (LRS), any resident Indian may invest up to US $2,50,000 per year in global equity markets. Resident Indians may invest in direct equity by routing their investments through an international broking account, invest indirectly in India-based mutual funds, which in turn, invest in overseas mutual funds, or in globally listed exchange-traded funds (ETFs), which are listed in overseas stock exchanges.
2. Why are global equity markets, an attractive investment?
Some of the leading listed companies in the world are now available to Indian investors. These include blue-chip companies in the US & Europe apart from the companies that are also based in other emerging markets. Investors can directly invest in US technology companies like Facebook, Amazon, Google, Apple, Netflix, etc. Markets in the US and Europe are much larger than the Indian equity market. For example, the benchmark large-cap, US S&P 500 has a market capitalisation of US $33.4 trillion as of December 31, 2020, while Europe-based, Euro Stoxx 600 has a market capitalisation of Euro 11.8 trillion as of March 30, 2021.
3. How should investors choose an international equity investment?
Indian investors can choose to invest directly or indirectly in global markets depending upon their ability to follow the international markets on a regular basis. Direct equity investors need time & resources to evaluate the companies listed abroad to take active investment decisions. For more passive investments, which need less active monitoring investors, can consider either investing via a mutual fund that invests in units of a global fund or in an ETF that tracks sectors or market indices. The other considerations that may be relevant for an investor include whether they would like to invest in growth stocks or value stocks as different markets provide different opportunities.
4. What steps should an investor take to invest directly in global markets?
Firstly, an investor can open a broking account that allows them to invest in these global markets – like interactive brokers. As a second step, the investor can identify & designate a bank account via which, the international investment can be routed. The investor needs to have the account for at least a year before remittance. Then, Form A2 is required, which notes the reason for remittance and must be submitted to the bank for the transfer of funds. From October 1, 2020, LRS remittances of more than Rs 7 lakh per annum will attract a tax collection at source (TCS) of 5 per cent but this can be claimed as a tax credit while filing the tax return. In terms of income tax, investors need to keep in mind that gains from international equity investments will be taxed at 20 per cent if held for more than 3 years, while investments held for less than 3 years, will be taxed at the relevant income tax slab rates. Also, dividends and interest received from the investments will be taxed at the applicable income tax slab rates.