Adding international equities to an Indian investor’s portfolio can remove risks stemming from concentration in the Indian market. There are several international equities that have robust growth prospects. Therefore, International equities add diversification benefits to portfolios. However, purchasing international equities from India can be a complicated process.
In India there are restrictions on sending capital overseas. This is because the government regulators have not allowed the capital account convertibility in India. What does this mean? It means that Indian investors cannot buy foreign assets at will. Foreign assets refer to shares, bonds, real estate, and other such assets. To be clear, India has current account convertibility so one can buy goods after paying appropriate shipping and duty. The Capital Account not being convertible also implies that one cannot sell local assets overseas automatically. The Indian government has not allowed this because it can lead to extreme volatility in the Indian Rupee and prices of Indian financial assets. Further, in times of financial stress, there can be capital flight from India, if the Capital Account if freely Convertible. Countries that allow the Capital Account to be freely convertible do so because it strengthens the domestic currency and usually increases the capital inflow into the country that can contribute to economic development.
The government does allow Indian citizens to transfer a certain amount internationally each year under the Liberalized Remittance Scheme (“LRS”). Under the LRS an individual can transfer a total of USD 250,000 annually towards purchase of assets internationally but these assets cannot include leveraged products or derivatives. So, investors can consider purchasing shares internationally under this scheme.
The above provisions apply to Indian citizens who are resident in India and do not apply to Non-Resident Indians. NRIs can invest based on laws of their resident countries.
There are some brokers who specifically offer access to international equities for Indian residents.
1) Vested
Vested is an Indian company through which Indian residents can invest in US based equities and ETFs.
2) Interactive Brokers
Interactive Brokers is an international broker that is listed on NASDAQ and has operations in India as well. Through Interactive Brokers, customers can invest in global equities.
3) Indian instruments that provide international exposure. There are ways to also purchase international equities from within India as well. Certain products like the Nasdaq 100 ETF trade on Indian exchanges. Investors can purchase these accounts from Indian trading accounts.
Disclaimer: Vitspan does not provide any investment related, tax related or financial advice. The information presented is done so without considering the investment objectives, risk profile, or economic circumstances of any reader or investor. The information presented may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the potential loss of principal. Please consult your financial advisor prior to making investment related decisions.