A Guide to International Investments in Stock Market
As investors seek to diversify their portfolios and mitigate country-specific risk, investing in assets located abroad has become increasingly popular. Indian investors, in particular, have shown a strong interest in global investments.
The recent budget has brought a change for retail investors looking to invest in international stocks. Under the Liberalized Remittance Scheme (LRS), individuals can now invest up to $2,50,000 per year in foreign stocks, bonds, ETFs, or property. The Tax Collection at Source (TCS) for remittances under the LRS has increased from 5% to 20%. While this may have a temporary impact on an individual’s cash flow, the TCS will be available as a tax credit when returns are filed.
When it comes to international investing, it’s important to understand how taxes work. Your investment is considered a debt security, and any profits you make within three years of selling your investment will be added to your income and taxed at your marginal tax rate. However, if you hold onto your investment for more than three years, it will be considered a long-term capital gain, and you will be eligible for indexation benefits.
In other words, your international investments will be taxed like any other debt security in India, but if you hold onto them for the long term, you may be able to enjoy lower tax rates thanks to indexation. This makes international investing an attractive option for Indian investors looking to diversify their portfolios and potentially earn higher returns.
Despite the increase in TCS, investors should not be discouraged from investing in international markets. The government’s aim is to establish a reporting system through the collection of TCS, not to collect tax. This change does not diminish the attractiveness of the product being invested in.
Investors can still benefit from global diversification by investing in mutual funds or ETFs that invest in global stocks. These investment options provide exposure to a wider array of investment opportunities and can potentially offer higher returns. By spreading investments across a broad range of global markets, industries, and currencies, investors can reduce the impact of market fluctuations in any one specific market.
Domestic mutual funds that invest in international schemes have a Total Expense Ratio (TER) of 1-2%. These investments do not fall under the $2,50,000 limit for LRS, as they are made in Indian rupees. The Securities and Exchange Board of India (SEBI) has established an overall investment limit of USD 7 billion for mutual funds and a separate restriction of USD 1 billion for international ETFs.
At Navia, we offer easy-to-invest baskets with global ETFs such as International Tech Stocks, Nasdaq 100 ETF, Shariah Bees, Mafang, and many more with no brokerage fees.
In conclusion, investing in international markets is a necessary option for diversifying portfolios and reducing country-specific risk. The recent budget change does not diminish the attractiveness of these investments, and investors can still benefit from global diversification by investing in mutual funds or ETFs. So, go ahead and make your investments with confidence, and let the power of compounding work in your favour. Happy Investing!
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DISCLAIMER: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Brokerage will not exceed the SEBI prescribed limit.
