Understanding the concept of Cross - Border Investing

An individual, a public company, a private company, a government body or any social institution can make an investment in a foreign country.

Cross-border investing is a high-interest topic for many investors.   

Cross-border investing is basically investing in a company incorporated under the laws of another country either in the individual capacity by buying shares and/or debentures or in the capacity of a company by way of mergers and acquisitions and/or forming a new company or taking over an existing company etc. An individual, a public company, a private company, a government body or any social institution can make an investment in a foreign country.  

There are many mutual funds and ETFs that invest in international markets. Some mutual fund in India invests a small part in the global market. Most options are directed towards the US market and fewer options are available for Japanese or European markets. On a yearly basis, we can invest up to $2,50,00 and one transaction of not more than & $7,000.  

There are also some advantages and disadvantages to this. First is the equity risk i.e., if the price of the equity loses its value. The other risk is currency devaluation. If the Indian currency is appreciated against the country currency you have invested into you will get less value, whereas, the advantage is equity appreciation. The US market has gained more than the Sensex and Nifty in the last decade. Secondly, the Indian rupee has depreciated by 3 to 4 per cent on yearly basis. Whereas, the advantage is if you had invested $ 1000 equity at 78 dollars and sold when the dollar is at 80, you would have gotten the benefit of rupee depreciation.  

Looking at the taxation part, what dividends you earn in the US, about 25 per cent is deducted at source in India. But considering your tax slab you can claim it back. For the individual stock investment, if you sell after 24 months (LTCG) it is taxed at 20 per cent and if you sell it before 24 months then it is taxed according to your income tax slab.