What are the Regulations to Invest in Foreign stocks for Indians?
With stock markets booming and the returns that the Stocks of World top companies are giving to investors, Investors are always on the lookout for new investment opportunities. Investors wanted to make use of each and every opportunity that is available. When the returns on the Indian markets are not up to the mark, then they will start to look at the foreign markets for the opportunities. But before moving to invest in foreign markets like the USA, you need to know what are the regulations to invest in foreign stocks for Indians.
For example owning the shares of companies like Apple, Tesla, Microsoft and google like companies are a dream for millions of Indian investors. But with the introduction of FinTech in the stock market trading the process became so simple. you no longer need to worry about the regulations to invest in foreign stocks. Because the stockbroker will guide you through the process and will make it simple at each step making use of the technology platforms.
Most of the times, there is no need for any paperwork for opening an account to invest in US stocks. In India already many Indian stock brokers tied up with Foreign brokers to make it easy for an Indian investor to invest in US stocks. The broker like Groww has made the process simple that there is no need for any paperwork and everything will be done online. After registering with Groww, it will take a few days for your US Stocks investing account to be ready. You can click here to Check out Groww US stocks investing facility.
And also all the regulation to invest in foreign stocks are taken care of by the Stock Broker with investor nothing to worry much. But it is important that you understand these guidelines which govern the investment outside India by any Indian citizen.
To invest in foreign stocks, you need to transfer money abroad. This transfer of money to foreign is guided by regulations from RBI to prevent any fraudulent activities. Previously this transfer is with lot of approval and paperwork. But not the process is simplified with the introduction of Liberalized Remittance scheme in the year 2004.
Now the Indian Individuals can invest in foreign assets without any approvals but there is an upper limit on these investments. The government has kept an upper limit of $250,000 per financial year that is allowed to be invested in foreign stocks. Even the stockbroker with whom you open your foreign investing account will not allow you to add more than $250,000 per financial year. They restrict this because they are bound by the regulations of the upper cap amount allowed to be invested in foreign stocks per individual
This limit on the permissible amount to invest in foreign stocks is applicable for both current and capital accounts or both. Hence it is important to understand all the transactions that are involved in LRS. For example the transactions under the current account such as gifts, Medical expenditure in foreign, Business-related expenses and private travel. Now coming to capital account transactions. These will include any Investment in stocks in foreign countries, Investing in buying any property abroad, Setting up wholly or subsidiary in foreign countries, and also repayment of loans acquired when you are an NRI.
But it is important to understand that the LRS scheme won’t allow buying and selling Foreign exchange abroad and also strictly restricts buying lottery tickets foreign. In a similar manner, it is also restricted to investing in the countries which are identified as “Non-Co-operative Countries” by the Financial Action task force.
Regulation to invest in foreign stocks for Indian citizens also makes us understand on what cases the RBI will extend the limit of $250000. When there is a medical expenditure then RBI will allow one to spend more than the limit. and also in case of an educational purpose it allows. For increasing the limit, approval has to be taken from the RBI producing the required necessary document.
But remember that if you are earning any Dividends from your investment in foreign stocks you can reinvest them in foreign. This limit of $250000 on the maximum amount of remittance allowed per financial year per individual is irrespective of if you have brought back the amount of not. Hence even if you bring some money back to India, your limit cannot be increased. Hence it is suggested to invest any dividends or earnings from foreign stocks to invest back there in case if you are planning to increase your portfolio of foreign stocks.
Now an individual who is a resident Indian need not worry about all the complex that is kept in place by the RBI for investment abroad. the stockbrokers with whom you have opened your investment account will make sure that you comply with all the regulation. You just have to keep updated with all the notification which the stockbroker sends you and act accordingly and if there is any clarity required, you can reach out to RBI website for complete details.