Eyeing SpaceX, OpenAI stocks? Global investment platforms offer access

While selecting one, check the safeguards and the tax-reporting support offered by it

Three high-value initial public offerings (IPOs) expected in the United States (US) market — SpaceX, Anthropic and OpenAI — have sparked interest among equity investors worldwide.

 

Several platforms now allow Indian investors to buy foreign stocks and exchange-traded funds (ETFs) through the Liberalised Remittance Scheme (LRS) route. Investors should undertake considerable due diligence while selecting a platform.

 

Why IPO access is restricted

 

Indian investors cannot participate directly in IPOs in the US market, but they can buy these stocks once they are listed on exchanges.

 

“Primary-market allocations are routed through underwriting syndicates that largely serve US institutions and a few domestic retail channels controlled by banks. Indian investors using the LRS route access US markets through a partner broker that does not sit in the IPO allocation chain,” says Viram Shah, founder and chief executive officer (CEO), Vested Finance.

 

Why use foreign platforms

 

Indian mutual funds investing abroad share an industry-wide cap of $7 billion and a separate $1 billion cap for overseas ETFs. Several large fund houses have paused or capped fresh subscriptions into their international schemes because the overseas investment ceiling is close to being exhausted. Investors who want global exposure through the mutual fund route may find the door shut when they want to invest.

 

Platforms allow investors to build the portfolio they want. “A fund gives investors a fund manager’s basket, whereas a platform gives them the whole opportunity set and lets them decide,” says Shah.

 

These platforms also offer fractional investing, which makes even high-priced US stocks accessible.

 

A portfolio invested only in India exposes investors to macroeconomic and other risks specific to India. “Global investing can improve geographic diversification and reduce exposure to single-country risk,” says Vishal Dhawan, founder and CEO, Plan Ahead Wealth Advisors.

 

These platforms provide access to sectors or stocks that are unavailable or under-represented in India. “Indian investors can get exposure to semiconductor, artificial intelligence or electric vehicle stocks,” says Arnav Pandya, founder, Moneyeduschool.

 

International investing also provides a currency hedge. The rupee tends to depreciate against the US dollar and many other global currencies. “Rupee depreciation can benefit investors who hold foreign-currency assets,” says Dhawan.

 

Understand the risks

 

International investing is operationally complex. “Banks require specific forms to be filled for transferring money under LRS. Income-tax return filing also becomes more complicated,” says Dhawan.

 

Estate planning rules create added complexities. In some geographies, investors may be required to pay estate or inheritance tax.

 

Who should use LRS

 

The LRS route suits investors who want to manage their global allocation actively, who want direct ownership of specific companies, have a reasonably long horizon and are comfortable with currency volatility.

 

“The LRS route also makes sense for investors who face the closed-door problem on the mutual fund side but want international exposure,” says Shah.

 

Investors planning for international goals, such as foreign education for children and overseas travel, which involve expenses in a foreign currency, may also find this route useful.

 

“Sophisticated investors who have a large portfolio, a long investment horizon and the ability to take considerable risk may benefit from international exposure through this route,” says Pandya.

 

Who should stay away

 

The LRS route is less suited to investors who would rather hand over investment decisions entirely to a fund manager. “Investors who want operationally simple products, do not want tax-reporting complexity, or want to avoid succession-related challenges should also stay away,” says Dhawan.

 

Investors making very small investments may not find this route ideal.

 

Direct foreign investing requires robust research. Without it, investors may make poor decisions and end up investing in hot stocks and themes. “Investors who do not understand global markets should avoid this route,” says Pandya.

 

Choose the platform carefully                     

 

Check the platform's tax-reporting module. “It should offer proper reports that make it easier for investors to file their tax returns correctly in India,” says Dhawan.

 

“Investors should check whether the platform helps with A2 remittance handling, tax collected at source (TCS), and year-end reporting for foreign-asset disclosure,” says Shah.

 

Compare all costs before selecting a platform. These include remittance costs, one-time charges and withdrawal fees.

 

Also understand where the assets are actually held, who safeguards them and whether the securities will be protected if the platform goes out of business.

 

Check the range of investments available on the platform, the promoter's credentials and regulatory approvals.

 

“Investors should check whether the platform works with a regulated US broker-dealer, whether their securities are protected by the Securities Investor Protection Corporation (SIPC), and whether the securities are held in their name,” says Shah.

 

Follow LRS norms

 

Resident individuals, including minors, can remit up to $250,000 per financial year under LRS. The scheme is available for permissible current or capital account transactions. “LRS is not available to corporates, partnership firms, Hindu Undivided Families, trusts, etc,” says Rupali Singhania, founder, Areete Consultants.

 

Avoid investing in derivatives, as this is not permitted under the LRS route.

 

Factor in TCS

 

Investors have to pay TCS of 20 per cent once their cumulative remittances (on, say, education expenses, medical expenses and travel spends) cross Rs 10 lakh.

 

They can claim TCS as a refund while filing their income-tax return or adjust it against other taxes. However, TCS does result in money being blocked for some time.

 

Report foreign assets

 

Those investing in foreign stocks must file their income-tax returns accurately.

 

“Once a resident individual has purchased foreign stocks, it is mandatory to report them in the income-tax return under Schedule FA. Dividend income or capital gains from foreign stocks should be reported in Schedule FSI,” says Singhania.

 

Resident investors can claim credit for foreign taxes paid in another country. “Investors claiming foreign tax credit should furnish Form 67 on the income-tax e-filing portal,” says Singhania.

 

Investors are allowed to retain and reinvest income from foreign investments made under LRS. “Income that is not reinvested, or foreign exchange that is not spent, should be repatriated to India within 180 days from the date of receipt or purchase,” says Singhania.

 

A few handy tips

 

Investors who want to invest gradually should still consider sending money in larger lots. This will help them avoid overpaying fixed remittance costs.

 

Do not buy foreign securities without adequate research. Avoid short-term trading and speculative investments. Remember that equity investing, whether in the Indian market or abroad, requires a long-term horizon.