Most of us are users of products from Apple, Nvidia, Adobe, Amazon, Coca Cola, Amway, Fed Express, HP, Intel, Microsoft, Pizza Hut, Nvidia etc. We can’t forget the role of Google in our day-to-day life. As per the greatest stock market investors across the globe, it is best to invest in the companies whose products common folk use in their daily lives. But stocks of these companies are listed outside India. How can one invest into them?
Investing in foreign stocks, particularly in the US market from India, is possible. It can be a very powerful wealth creation strategy for diversifying your investment portfolio when it has crossed 6 figures. It not only opens exciting opportunities but also exposes you to the global economy and its associated growth. However, for beginners, this journey can seem to be troublesome as there is no popular way of investing into these stocks. In this guide, we will walk you through the process of how to start investing in foreign stocks as an Indian investor.
Why to invest in foreign stocks?
Before understanding how to invest in these foreign stocks, let’s first understand why to invest in them? These investments can provide a level of diversification that is hard to achieve solely with domestic investments. You also benefit from the currency appreciation of USD in terms of INR. By venturing beyond your home market, you can benefit from the global economic growth.
One of the magical concepts you encounter in investing is the power of compounding providing you with the benefit of starting early and letting your investments multiply over time. Investing in foreign stocks can help you harness the same power on a global scale.
Risks and Challenges involved: Investing in foreign stocks comes with its own set of challenges. Currency fluctuations, or global conflicts and sentiments for instance, can impact your returns. Understanding and managing these risks is crucial for success. Thus, the allocation to foreign stocks could never be too high.
Setting Investment Goals: Before diving into foreign stocks investing, it is important to define your investment goals. You must be sure whether you are looking for short-term gains or planning for your retirement? Your objectives and goals will define your investment/long term trading strategy.
Note: While it’s very tempting to jump into investing right away, it’s wise to build an Emergency Fund first. You must invest with the surplus money, after attending to your necessities and emergency fund development. This ensures you have a financial safety net in place if anything goes wrong in your life.
Educate yourself by getting the right knowledge: In the steps to invest into stock market, a beginner should learn the basics of the stock market first. There is no point getting into something which one doesn’t even understand or knows the rules of. After understanding about Indian markets, try to understand the basics of foreign stocks and its market, and how do they work? There are numerous stock market courses online free with certificate and even several stock market free webinar available to beginners.
Research is key: Familiarize yourself with common terms like stocks, dividends, and market orders and intricacies of financial sheets such as balance sheets, cashflow statements and balance sheets. Investing in foreign stocks doesn’t imply that you would invest into any stock. Even if you’re going for the penny stocks, make sure you’re investing into the best penny stocks of that market. It’s essential to know the landscape, understand the major stock exchanges, such as NYSE and NASDAQ, and explore different sectors and prominent companies. In the last step, you must find the best fundamentally sound stocks that would help you unlock the power of compounding. Remember you’re investing for diversification, and this does not imply that you’ve to put all your money here. You could also explore strategies like dollar-cost averaging to build a well-diversified portfolio.
Methods of investment:
- International Demat Account: You can open a new International Demat account from various service providers. This would add flexibility to add or remove stocks and alter their distribution whenever you please.
- Using ETFs or Mutual funds: You can also invest in the foreign market, without opening a demat account, with the help of ETFs and Mutual funds. These are offered by the common Indian fund houses and AMCs.
Choose the Right Brokerage: Selecting the right brokerage for an international demat account is critical. Many Indian brokers offer access to international markets, and there are many international brokers offering their services in India too. You must compare their offerings to find the one that suits your needs.
Add your funds to your account wisely: Adding funds to your international demat account would incur charges, unlike your Indian demat account. Thus, managing currencies becomes an essential part of the game when it comes to investing in foreign stocks. You need to add funds to your international demat after analysing the charges and using strategies, unlike spontaneously in an Indian demat account. Transferring funds from your Indian bank account to your international brokerage account is a straightforward process when you have the necessary information and knowledge of the costs incurred.
Placing Orders: Before making your first investment in foreign stocks, you must understand various order types, such as market orders and limit orders, as their terminology differs from broker to broker. It is essential for to learn the smallest concepts and differentiations of order execution to make the most of your investments.
Monitoring and Managing Investments: After investing one must keep a track of their investments using online tools and apps. Monitoring own portfolio’s performance is vital for making informed decisions even if it is a 10% investment in foreign stocks. It is important to periodically rebalance the stocks to maintain the desired asset allocation.
Taxation and Compliance: Investing in foreign stocks has tax implications. One must familiarize themselves with these rules with the help of a CA to ensure compliance with Indian tax laws. While filing your tax returns, be sure to report your foreign investments accurately.
Currency Risk Mitigation: Mitigating currency risk is essential for Indian investors. It is noteworthy that the investment in foreign stocks should never exceed that of 10% of the total invested capital. Strategies like hedging can help protect your investments from currency fluctuations. Staying informed about global events and market trends will enable you to adapt to changing conditions.
Investing in foreign stocks is a rewarding journey for Indian investors. It offers diversification, the potential for growth, and access to the power of compounding on a global scale. While there are challenges, the right knowledge and preparation can help you navigate them successfully.
One must remember that continuous learning is key. Consider exploring Top 5 Online Stock Market Courses in India to enhance your skills. Understanding concepts like candlestick patterns and finding stock market courses online free with certificate can further boost your confidence in managing foreign investments.
What are the benefits of investing in foreign stocks?
There are two major benefits of investing in foreign stocks – global diversification and profit from currency appreciation.
What are the risks of investing in foreign stocks?
These investments are more volatile than domestic ones, as they are highly susceptible to global news.
How do I invest in foreign stocks?
You can choose to open an International demat account or can invest using international offerings from domestic fund houses via mutual funds or ETFs.
What are the best foreign stocks to invest in?
It’s best to invest into companies whose products are widely used, but a through fundamental and management analysis remains always due.
How do I diversify my portfolio with foreign stocks?
You can diversify your portfolio with foreign stocks by allocating a <10% size of your entire portfolio size to them. You can invest in their respective mutual funds or ETFs available.
For personalized guidance, you may also explore the best stock market courses in Delhi or do a google search for stock market institute near me. With the right knowledge and strategy, investing in foreign stocks can be a fulfilling and profitable endeavor. Happy investing!