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Better returns, lower risk lure Indian investors overseas

There is a growing trend of Indians investing in stocks abroad, taking advantage of the RBI's Liberalised Remittance Scheme which allows an individual to spend up to USD 250,000 a year abroad.

Published: 03rd August 2020 09:11 AM  |   Last Updated: 03rd August 2020 09:11 AM   |  A+A-

A woman walks past the New York Stock Exchange. (Photo| AFP)

A woman walks past the New York Stock Exchange. (Photo| AFP)

Express News Service

NEW DELHI: 56-year-old Pradeep Malhotra a top corporate executive with a tech company,  wakes up everyday to switch on his computer and pore over stocks listed on the Nasdaq.

While most of his friends and fellow colleagues dabble in stocks in the NSE or BSE, Pradeep decided some two years ago to "diversify geographically" and add stocks listed on the New York Stock Exchange to his portfolio. 

"Everyday I would read about Facebook, Apple, Amazon and Google, so one day I decided I would start buying them. The move has been profitable. I have also cut down on my country risk. If anything happens to the Indian economy, some of my investments abroad will still stay ring fenced," Malhotra says.

There is a growing trend of Indians investing in stocks abroad, taking advantage of the RBI's Liberalised Remittance Scheme which allows an individual to spend up to USD 250,000 a year abroad for a variety of reasons, including investments in securities.

Amit Banerjee, an independent merchant banker specialising in East Asian funds, says there has been "rising interest among Indian investors in foreign stocks since the LRS scheme was notified". Investors are winging their way abroad not only to reduce country risk, but also because they find returns on the NYSE, London Stock Exchange or even the Hong Kong stock exchange better. 

With the rupee declining against the dollar, currency risks are also favourable. In dollar terms, returns for a ten-year period on S&P BSE Dollex is 6.8 per cent, while that of the NYSE S&P 500 is 13.6 per cent.

Despite the pandemic, the NYSE Nasdaq index and London’s FTSE 100 have been doing well. While Nasdaq which was 6,860.67 on March 23, 2020, rose by nearly half to 10,745.28 by July 31; the FTSE 100 rose from 4,993.89 on March 31 to 5,897.76 as on July 31. 

While some investors who are adventurous enough and feel confident play directly, others prefer to invest through mutual funds. To play directly, investors usually use big brokerages in India who have tie-ups with foreign brokers and place investments on behalf of their clients.

Investors place their money in a global fund, whose managers in turn manage the Indian investors' money along with others. Any capital gains made within a two-year holding period are treated as short-term gains, while gains beyond a two-year holding are considered long- term and taxed at 20 per cent with indexation benefits. 

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