Looking outside India’s borders for investment opportunities is gaining traction among retail investors. Data available for the first two months of 2012-13 shows that we invested $36.4 million (Rs 201.8 crore) in overseas equities and debt. In the whole of 2011-12, we invested $239.5 million (Rs 1,328.4 crore).

Keeping in mind the cardinal principle of diversifying your portfolio, this is a sound strategy to secure sizeable returns. For example, if you had invested in stocks of US-based Apple Inc at the start of 2012, you would have secured 50 per cent returns on your investment. Coupled with depreciation of the rupee since the start of the year, the return on investment would have been even higher.

However, keep in mind that not all stocks are good picks; an investment in Facebook at the time of its IPO would have seen your investment reduced by half.

Opening an account

Liberalisation of overseas investment norms by the Reserve Bank offers investors the opportunity to dabble in stocks of companies listed overseas. According to the RBI guidelines, Indians are permitted to remit up to $2,00,000 ( Rs 1.1 crore) overseas every financial year to invest in equity and debt, besides other purposes.

This limit is inclusive of gifts and donations, business or private travel, studies and medical treatment.

The procedure for investing in a country like the US is fairly simple. You will have to open an account with an international broker. There is also the option of going through a domestic brokerage firm that has tied up with an international broker, which could make the account opening process easier.

Know-your-customer norms for international investing are similar to the domestic regulations. You have to provide an identity proof such as a passport or PAN card that contains your date and place of birth, as well as signature. If the place of birth is not stated, a copy of your birth certificate can be accepted. You also have to submit proof of residency through a voter ID card or driving licence. Even a bank statement or utility bill will suffice.

In addition, you will have to designate a branch of a bank authorised by the government for such overseas remittances under the scheme. You should have maintained the bank account for a minimum period of one year prior to the remittance. In this regard, the authorised dealer is likely to verify the source of funds and will also ascertain the purpose of any remittances to ensure they are not for purposes prohibited under the scheme.

It is prudent to know the laws of the country you seek to invest in before pumping in your money. For example, in the US there is a withholding tax applicable for dividends. “This tax is to be paid by the company concerned and after making the applicable deductions, the amount is paid to the shareholder. This can vary for each country and is specific to their regulations” says B Gopkumar, Executive Vice-President, Kotak Securities.

Further, “On profits/income, short-term tax (on investments less than one year) and long-term tax has to be paid in India and filed locally by declaring the income made abroad,” he adds.

Expenses

One of the biggest hurdles to becoming an overseas investor is the sizeable initial deposit to be made with the brokerage house before beginning to trade in stocks. Besides this, you will have to shoulder a brokerage fee. In the case of some brokerages, this is a fixed value, while, in others, it is a percentage of the transaction value. For example, in the case of US trades, Saxo Capital Markets of Singapore charges a minimum brokerage fee of $15 per transaction or $0.02 per share, whichever is higher. In the case of Kotak Securities, it is a flat 0.75 per cent of the transaction value. However, if you are an active trader, there is always scope to negotiate on the brokerage fees.

Mutual fund route

You can also invest in stocks of overseas companies indirectly. Exchange-traded funds like the Nasdaq-100 from Motilal Oswal and the Goldman Sachs Hang Seng BeES allow you to bet on the performance of these indices, rather than individual stocks. Furthermore, several mutual fund houses present the opportunity to invest overseas through their international fund offerings.

> arvind.jayaram@thehindu.co.in

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