When it comes to Indian investors trading in foreign stocks, the US stock market stands out in terms of growth and stability. This was evident during the time most countries all over the world were on a lockdown and their markets nosedived. Among the markets that recovered rapidly, the US market was at the fore.
However, this is not the only time Indian investors have considered US stocks for investments. This has been a trend for quite a few years now and the main reason investors are looking at foreign stocks is for portfolio diversification. This diversification serves two important purposes:
1. The impact of the market volatility is reduced – By investing in foreign stocks, investors can keep their risk exposure in check. It is known to most investors that foreign markets have a low correlation with Indian markets.
2. More opportunities for investment – When investing in US stocks, there are a lot of popular companies who list their stocks. Firms like Apple, Google and Facebook are not new to India. While investors have used products from these companies, they can also invest in them since there is awareness of the company’s performance.
One can invest in foreign stocks through direct or indirect investment:
1. Direct investment by opening a foreign trading account with a domestic or foreign broker:
If you choose to trade with a domestic broker that has collaborated with a stockbroker in the US, you will have to submit some documents to open an account. The domestic broker will be an intermediary who will execute the trades. However, there will be some restrictions on the number of trades you can make or the type of investment instruments you can access. Also, the brokerage may be high and there may be charges for currency conversion. Brokers like Motilal Oswal offer products like ‘US Investing’ where you can invest in international stocks from your Indian trading account. You will have to do an online KYC after which you can invest in international stocks. Motilal Oswal has tied up with Stockall that facilitates this service.
Through this service, you will not need a minimum investment. Along with this, you can also sell or buy fractional shares of companies like Amazon. It gives you the ability to own shares of your preferred international company and earn profits through their success.
There are also a handful of foreign stockbrokers in India with whom you can open an account. Be sure that you look into all the fees and charges before you start trading with them.
2. Indirect investment through mutual funds or ETFs:
Most investors who choose to invest indirectly, go for mutual fund investments that invest in US stocks. It is the easiest way to invest in foreign stocks and there is no need for an overseas trading account. You only need to choose the right stocks for investment and keep an eye on the expense ratio of the mutual fund scheme before you buy it.
ETFs or Exchange Traded Funds are another type of investment where you can purchase US ETF units from a domestic or international broker. The other way to invest is to purchase Indian ETF units that follow an international index.