Demat account: How to invest in international stocks? Here are 4 ways
Opening a demat account with Indian brokers or foreign brokers enables investing in US stocks. Mutual funds and ETFs are alternative options for international stock investments, providing diversification benefits and exposure to global markets.
Global brands such as Apple, Netflix, Microsoft, Google, and Facebook are an integral part of our daily routines, reflecting their widespread influence on our lives. From smartphones to automobiles and consumer electronics, Indians have a penchant for owning products from these renowned international companies.
As India's consumption-driven economy continues to thrive, the young population fuels the demand for these international brands, making Indian consumers a significant revenue source for global brands.
India remains one of their biggest markets outside their home countries, taking billions in profits. Considering the investment perspective, have you ever thought about becoming a shareholder in these brands and benefiting from their growth?
Investing in the stocks of international companies has become easier than ever for you. You now have multiple options to diversify your portfolio by investing in the stocks of international companies, allowing you to capitalise on global growth opportunities.
In this article, we will delve into the avenues for investing in these stocks through the demat account route, as well as through mutual funds and ETFs.
Demat account route
To trade in Indian stocks directly, the only way to open a demat account with registered depository participants (DPs) is by submitting all required documents. Nowadays, most DPs provide multiple options for retail investors, enabling them to invest in stocks, bonds, and mutual funds through a single account.
This simplified approach reduces the inconvenience of managing multiple accounts for various investment avenues. However, it's important to note that a regular demat account does not grant direct access to international stocks, as most depository participants (DPs) do not offer this feature.
Nevertheless, certain brokerage firms like Kotak Securities, HDFC Securities, and ICICI Direct provide retail investors with the opportunity to invest in international stocks through partnerships with foreign brokers.
For instance, if you're interested in investing in U.S. stocks, you would need to open an overseas trading account with one of these brokerages, which have affiliations with U.S. brokers. Once your account is set up, you can transfer funds to the overseas demat account, similar to your regular demat account, and begin investing in U.S. stocks.
When venturing into investing in US stocks, it's crucial to navigate the forex formalities under the RBI's Liberalized Remittance Scheme (LRS) with caution.
As an Indian citizen, you're permitted to invest up to $250,000 annually. It's important to note that this limit encompasses all investments or expenditures in foreign countries, not solely stocks.
Before delving into US stock investments, it's necessary to convert your rupees into US dollars.
Second option
In addition to opening a demat account with an Indian brokerage firm, another option is to directly invest in US stocks by opening a demat account with a foreign broker like Interactive Brokers, TD Ameritrade, or Charles Schwab.
Having a US-based address or citizenship isn't necessarily required to open a trading account with brokerage firms in the US or to engage in transactions on the US stock exchange.
Mutual fund route
If you prefer not to go through the process of opening a separate overseas brokerage account to invest in U.S. stocks, you may consider investing through mutual funds instead. Many Indian fund houses offer mutual funds specifically designed to invest in the stocks of international companies.
Exchange-traded funds route
Investing through exchange-traded funds (ETFs) is another avenue to consider. ETFs are investment funds traded on stock exchanges, similar to individual stocks. With numerous ETF options focusing on international stocks, you have the opportunity to gain exposure to global markets through these diversified investment vehicles.
FAQs
What are the benefits of investing in international stocks?
Investing in international stocks offers diversification benefits, access to global growth opportunities, and exposure to leading companies in various sectors. It allows you to spread risk across different markets and currencies, potentially enhancing portfolio returns over the long term.
What are the trading hours for international markets?
International markets have specific trading hours based on their time zones. For example, the New York Stock Exchange (NYSE) and NASDAQ operate from 7:00 p.m. to 1:30 a.m. IST. Understanding international market hours is crucial for investors planning to trade or monitor their investments.
How does the brokerage fee for international stocks compare to that for domestic stocks?
The brokerage fee for trading international stocks may vary depending on the brokerage firm and the specific market being traded. Typically, brokerage fees for international trades are higher than those for domestic trades due to additional regulatory requirements and currency conversion costs.
Am I exposed to exchange rate risk when converting dollars to rupees for international stock investments?
Yes, converting dollars to rupees exposes investors to exchange rate risk. Fluctuations in the exchange rate between the US dollar (USD) and the Indian rupee (INR) can impact the value of investments denominated in different currencies. Investors should be mindful of currency risk and consider hedging strategies to manage exposure.
Can I purchase fractional shares of US stocks?
Yes, many brokerage platforms now offer the option to purchase fractional shares of US stocks. Fractional shares allow you to invest in high-priced stocks with smaller amounts of capital, enabling greater diversification and accessibility to a broader range of investment opportunities in the US market.
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