Your Money: HNIs should use trading platform to buy foreign stocks

For retail investors, the mutual fund route or offshore accounts are more suitable

Investors looking to invest in foreign stocks such as Apple or Facebook have many options today. There are mutual funds schemes that invest in such stocks, and of course, the seasoned investor can take the direct equity route. 

And the going has been good in some international markets. For example, the US market has been seeing sharp gains since Donald Trump was elected President. The Dow Jones Industrial Average climbed 13.42 per cent in the calendar year 2016 vis-a-vis the S&P BSE Index, which rose just 1.95 per cent. 

To tap this opportunity in global markets, ICICI Securities has tied up with Saxo Bank to offer trading and investment capabilities through a digital platform to Indian investors. Investors who invest through this platform can get access to 36 stock exchanges across 24 countries.

The investments will be done under the Liberalised Remittances Scheme which allows Indian investors to invest up to $250,000 in overseas assets, without the Reserve Bank of India (RBI)’s prior approval. 

Vishal Gulechha, executive vice-president and head-Equities, ICICIdirect.com says: “In recent times, there has been an increase in investor’s awareness and understanding of international equities as people relate to international brands like Facebook, Apple etc. Investments in international equities widen the investment avenues for customers as they can spread their investment across different geographies. Employees of MNC firms who have ESOPs also use the Overseas Trading facility.” Investors can diversify their portfolio across equities, ETFs and debt.

Some amount of international exposure to overseas assets helps to give one’s portfolio diversification in terms of asset classes and currency, says Nishant Agarwal, head of products, Investment Advisory and Family Office, ASK Wealth Advisors.

“You can also get exposure to themes that are not available in India, such as cutting edge start-ups or biotechnology,” he adds. But in case of direct investment, investors will have to deal with issues like whether tax has to be paid in case of booking income or while remitting, etc. Besides, in case of US equities, withholding tax, too, would apply. 

“Since these are too complex for individual investors to handle, I would recommend an assisted route. This could be either the feeder funds offered by domestic mutual fund houses where you invest in rupee. This will not affect the LRS (liberalised remittance scheme) limits also. Or you can take the offshore account route, where you invest through an investment account with the Singapore branch of a foreign bank. You can invest directly in foreign mutual funds, with help from the banks’ relationship manager to choose the funds,” Agarwal adds.

Trading platforms also offer low-cost broking, but they are more suitable for traders or high net-worth individuals (HNIs), who are well-informed and understand the overseas markets. Also, under LRS, investors can invest only in direct equities and cannot take exposure to futures and options. For international mutual funds, the expense ratio can range from 0.49 per cent for direct plans to 3.01 per cent for regular plans. It’s not that mutual funds are more expensive, because in this case (online trading platforms), too, investors will have to pay fixed platform fees and transaction costs. The advantage of such platforms is that you get a wider choice, says Prateek Pant, co-founder and head of Products and Solutions, Sanctum Wealth Management.

“But for retail investors who want to build long-term assets and link their overseas investment to a specific goal like children’s education or buying property, the mutual funds route is more suitable,” he adds.