Explained: How You Can Invest In Foreign Stocks From India

As an investor residing in India, do you ever wish to invest in big foreign stocks such as Tesla, Amazon, Google, Microsoft, Nvidia or Apple? Surely many of us do, right? But is it possible to do so? Can you, as an investor in India, invest in foreign stocks?

Well, the answer is yes.

Ways To Invest In Foreign Stocks From India

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Also Read: American Investor's 'Magic Formula' For Stock Market

There are two ways of investing in the foreign stock market from India:

1. Direct investment in stocks

How to directly invest in foreign stocks from India? You can invest in the foreign stock market directly by opening an overseas trading account with a domestic or foreign broker. Be mindful of the charges before you pick the best app to invest in foreign stocks.

Opening an Overseas Trading Account with a Domestic Broker

Numerous domestic brokers have tie-ups with stockbrokers in the foreign. They act as intermediaries and execute your trades. You can open an overseas trading account with any such broker. You might have to submit a set of documents to open this account.

However, it is important to remember that this facility has some restrictions. Based on the brokerage firm, you might have some restrictions on certain investment vehicles or the number of trades that you can make, etc, as per a Groww report.

The cost of investing can be high considering brokerage and currency conversion charges. Hence, ensure that you know all the costs before opening an account.

Opening an Overseas Trading Account with a Foreign Broker

You can also open an overseas trading account directly with a foreign broker with a presence in India. Some such brokerages are Charles Schwab, Ameritrade, Interactive Brokers, etc. Ensure that you understand the fees and charges before opening the account.

So, conduct your research properly before you pick the best broker to invest in foreign stocks.

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2. Indirect investment in stocks via mutual funds or ETFs

Like domestic investments, you can take an indirect position in foreign stocks without investing in them directly.

Here are two options to consider:

Mutual Funds

You don¡¯t need to open an overseas trading account or maintain a minimum deposit which can be the case with some stockbrokers offering direct international investments.

There are many Mutual Funds that invest in foreign Stocks and/or Mutual Funds.

Exchange-Traded Funds (ETFs)

You can also gain exposure to foreign stocks by investing in ETFs. There are direct and indirect routes available for ETFs. You can purchase foreign ETFs directly via a domestic or international broker or purchase an Indian ETF of international indices.

Also Read: Inside The Portfolios Of India's Biggest Stock Market Investors

How Much Can You Invest In Foreign Stocks

The Reserve Bank of India (RBI) released guidelines under the Liberalized Revenue Scheme (LRS) that permitted an Indian Resident to invest up to $2,50,000 (around 1.9 crore rupees) per year without any special permissions, as per the report.

Now that we know how to invest in the foreign market from India, let¡¯s look at the charges involved in investing in foreign stocks.

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What Are The Different Charges Involved?

Here are the different charges involved you should know while searching for how to buy foreign stocks from India-

Tax Collected at Source

A 5% TCS (Tax Collected at Source) is levied on all remittances above Rs 7 lakh under the RBI¡¯s Liberalized Remittance Scheme (LRS). This is applicable to the amount above Rs 7 lakh and not the total amount.

The TCS can be claimed as a refund when the taxpayer files an Income Tax Return (ITR).

Capital Gains & Dividend Tax

In the US, for instance, dividends are taxed at a rate of 25% for Indian citizens, as per the report. Owing to the Double Tax Avoidance Agreement (DTAA), the investor can claim credit for taxes paid abroad so that he/she doesn¡¯t have to pay tax on the same income twice.

There is no capital gains tax on your investments in the US. But you are liable to pay tax on the capital gains in India. So it's advisable to check this whenever investing in a foreign stock market.

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Bank Charges

Most banks charge foreign exchange conversion fees and transfer fees. There may also be a one-time account setup charge.

Brokerage Fees

Brokerages charge a fee on the buying and selling of shares, which varies.

Foreign Exchange Rate

The foreign exchange rate at the time of purchase or withdrawal can impact the costs and the number of units allotted.

Also Read: Understanding How Stock Market Transactions Are Taxed

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