Overseas Investment 101

This article is the first of a new section on investing in international opportunities for Indian investors. The writer is a patriot and believes that the best risk-adjusted financial returns may be available outside India in the short term.

Rudra Dalmia, Managing Director, Saxo Bank (India) walks you through the basics of dealing in securities overseas and guides you on how to choose your international investments well.

Few people are aware that Indians can now invest in securities overseas. The RBI has permitted Resident Indians (RIs) to invest overseas a few years ago, and although a significant number of Indians have exercised that option, the Indian investor is still very restricted in thought, risk and information about investing overseas.

Investing In Securities Overseas: A Few Facts

Every resident Indian is allowed to put USD 75000 per annum in investments overseas. This amount used to be USD 200000 till a few months ago, but the rupee crisis in early 2013 forced the RBI to reduce that limit.

Let’s take a look at some of the questions that people commonly have with regard to investing abroad, and the answers.

1. How can I invest abroad? RIs can open a stock broking account with a number of international brokers to get access to investing overseas. The procedure is simple – fill a form, provide the KYC information, advise the local bank to remit the amount to invest subject to the limits imposed by the RBI. Then, start investing!
   
   
2. Where should I invest? The rules of investing don't change. Invest in countries, industries and companies you understand. Take measured risks. And most important – Research, Research, Research.
   
   
3. Why should I invest abroad? In an increasingly globalised world, it is important to diversify risk and keep adjusting exposure to countries where the returns are higher than the perceived risk. India has underperformed a number of countries, and the Sensex and Nifty do not adequately reflect the situation on the ground.
   
   Indian investors need to start expanding their horizons and build global portfolios of excellence. The rupee is still controlled, so the ability to invest freely is curtailed. However, the limits available should be utilised to diversify one’s portfolio and also to take advantage of opportunities available outside India.
   
   
4. What assets should I invest in? The limit of USD 75000 per annum restricts one’s ability to invest in real estate, etc. So, the options are limited. Investors can seek exposure in equities and debt instruments and can also purchase options without margin funding. The universe of industries is unrestricted, and investors can invest in stocks like Samsung, Apple, GE, Google, Coke, Nike, Huawei or corporate bonds, real estate investment trusts (REITs), etc.
   
   
5. When should I invest?
   
   This is a two-step answer:
   
   (a) When should I send money out of India? This answer depends on the investor’s perception of the next phase of the rupee. The factors to observe are macroeconomic, and especially in India, political factors. If the economic indicators indicate that the level of inflation is high, the possibility of weakness in the rupee will be higher; if the government is weak and indecisive, the possibility of rupee weakness will be higher, etc.
   
   (b) When should I pick the investments? After the money has been transferred to a brokerage overseas, the next step is to follow the fundamentals and invest in quality businesses depending on one’s risk-return criteria. This rule is the same all over the world. Research your planned investments well and invest for the long term.
   
   
6. What about taxes? Most reputed brokerages offer tax planning and solutions for their investors. But the basic rule is that resident Indians have to pay taxes in India for their global income based on Indian Income Tax regulations. If there has been a Tax Deducted at Source by the Exchange, it will be adjusted in the investor’s Indian Income Tax return depending on the taxation treaty with the country of tax deducted.
   
   Most countries in the West have an agreement with India on dual taxation, and rebates are available accordingly. This applies to Dividends and Capital Gains. One must always declare one’s investments overseas in the annual tax returns so that there are no issues with the authorities in India.
   
   
7. Can I bring my money back to India in case I see opportunities here? There is no restriction on bringing money back into India.[PAGE BREAK]

Stocks On Your Fingertips?

Here’s a quick quiz to test how ready you are to invest in the overseas markets. If you know two or more of the following stocks, only then should you look at investing overseas as a risk diversification strategy. If you don't, start following the US markets to be aware of the coming trends.

Note that these stocks don't reflect the biggest brand or the most popular investments – they are the ones which made the most money.

Conclusion

The past five years have been exceptionally volatile and extremely difficult for investors. The protagonists of social welfare, financial returns and economic planning have been forced to intervene in each other’s space, and the private sector has seen huge intervention by the government in either proactively helping the market recover and grow investor wealth in countries, like in the US, Japan and Germany, or proactively acting against the interest of investors, like in India. Most Indians who invested in securities overseas in this period have seen exceptional rupee returns.

(Rudra Dalmia is the Managing Director of Saxo Bank (India) and is a seasoned international investor. Saxo Bank is an EU-regulated bank which runs one of the world’s most advanced online trading platforms. www.saxobank.com)

(The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Dalal Street Investment Journal)