investing beyond borders

let’s start with a thought experiment. say at the beginning of 2020, Elon Musk called you and asked you to invest in Tesla. you parted with, say, $100. if you had decided to cash in your investment last week, your equity would have been worth ~$6,000. that’s a 601% increase. it is an exciting prospect, isn’t it?

it’s not just Tesla, it seems, in all probability, that Flipkart, one of India’s biggest e-commerce companies, will list overseas. one of India’s biggest SaaS companies, Freshworks, is also listing in the US.

how can you buy in? earlier, it was difficult to invest overseas. one had to go through various middlemen and brokers to acquire equity in international companies. there were few options to gain access to foreign markets. but things have become much easier since 2015.

how much can you invest?

under RBI’s Liberalized Remittance Scheme (LRS), an Indian resident can freely take up to a maximum of $250,000 out of the country each financial year. this can be invested in foreign stocks and bonds.

how can you invest?

domestic fund houses have both active and passive schemes which let you invest in global stocks. there are new age startups, such as Groww, which allow you to invest directly into companies of your choice. conversion rates make it harder for those in India to buy full shares. for example, Amazon is trading above $3,000 per share. but most platforms allow you to purchase fractional shares if you don’t want to make a large commitment. it helps people get access to new assets. for the passive route, there are a few mutual funds that have exposure to the US markets.

what are the risks?

first there’s the currency fluctuation. purchasing in another currency is a double-edged sword. the dollar-rupee exchange rate keeps changing and that could mean a gain or loss in returns upon conversion. additionally, there are service and transaction fees that users pay to not just invest overseas but also to convert the currency.

then there is taxation. it all depends on the product you choose. a mutual fund scheme, an exchange traded fund or directly investing in a specific stock, will all be taxed differently depending on how long you hold those investments. mutual funds that invest majorly in international firms are not classified as equity schemes and are taxed as if they were debt funds. those schemes which have less than 35% exposure to foreign stocks are treated and taxed like any other equity fund in India. in case of investing directly in overseas stocks, there is long-term capital gains tax if the holding period is more than 24 months. if you pull out earlier than two years, it is considered short term gain and is taxed as per your income tax slab.

in 2019-20, Indians invested $430 million in foreign equities and debt and another $623 million in deposits abroad. Warren Buffet once said that if a business does well, the stock usually follows. if you believe in a business, borders shouldn’t stop you.