This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]
Certain things look a little complicated till they are done for the first time. Investing in stocks of foreign companies, like Apple, Google or Facebook, is one of those. It seems very complicated but it is not so.
A few days back Manshu had written a post on how NRIs can invest in the Indian stock market. CA Karan Batra wanted to have a similar post on how Indians can invest in shares listed on NYSE.
Here is what he had to say:
Hi Manshu
Very informative post on how NRI’s can invest in India.
I would highly appreciate if you could author another post on How Indian’s can invest in Shares listed on the New York Stock Exchange. I heard that its possible for Indians to invest in Shares listed on NYSE but not sure about how to invest..
These days, every other financial advisor advises his/her clients to diversify across asset classes and across markets. Some investors in an attempt to diversify their portfolios do not mind to experiment and desire to have information regarding the procedure.
So, here is my attempt to share the required information with our readers.
Open a trading account
Like you open a trading account here in India with a broking company to invest in shares listed on NSE or BSE or any other stock exchange, you are required to follow a similar process to open a trading account with an Indian broking house to invest in shares of some foreign companies listed on the stock exchanges of their respective countries.
How do I open a trading account to invest in International Capital Markets?
To facilitate you to do the same, an Indian stock broker enters into a tie-up with a foreign broking partner who has the license to act as an intermediary and execute the trades on your behalf in the foreign markets.
The Indian stock broker will act as an introducing intermediary between you and the foreign broking house. The Indian stock broker will also help you in getting your account opened and completing the formalities of Know Your Customer (KYC) applicable for that country.
You just need to fill an application form and provide your identity proof such as passport or PAN card and residential address proof such as Voters ID card or latest bank statement as the documents required to open an account.
Once your necessary details are registered, you will be provided the bank account details of the foreign broker to which funds are to be transferred. You will also get the contact details of the account executive who will take care of your account in case you require any kind of assistance.
Funds Transfer – Pay-In/Pay-Out Process
As per the remittance norms of the Reserve Bank of India (RBI), an Indian citizen can remit a maximum of USD 2,00,000 in a financial year, from any of the authorised banks in India, including for investments in international capital markets.
To remit funds to the foreign broker’s bank account, you will be required to visit your bank branch, duly fill Form A2 and submit it there along with your PAN card copy.
The foreign brokers accept funds originating from your bank account only and will reject any third party fund transfer. Also, they do not accept bankers drafts, cheques or cash deposits either.
To get your money back, you need to fill “Bank Transfer Request†(BTR) form online and send it to the foreign broker. Once the payout request is acknowledged, the amount will be credited to your bank account.
It takes around 24 to 48 hours to remit money from your bank account to your trading account with the foreign broker and around 48 to 72 hours from your trading account to your bank account.
You may remit funds in one of the many global currencies from your bank account to your trading account but you need to decide the base currency in which you want to settle your transactions. So, if you set USD as the base currency in your account, then all stock exchanges which accept payments in USD will settle your transactions in USD automatically.
For your trades on other exchanges, which do not accept payments in USD, the foreign broker will convert your base currency, USD in this case, to the currency of that exchange at the market rate to execute the transaction.
Once your account is opened and funds are transferred, you will be provided a client Login ID and password to have an immediate access to the foreign broker’s trading platform to buy and sell shares of the listed foreign companies. All dealings like trading, delivery of shares/funds etc. will be done directly with the foreign broker without any involvement of the Indian stock broker.
Demat Account
Unlike here in the domestic markets, where your bought shares get transferred into your demat account in T+2 days, when you buy shares in the foreign markets the shares remain in a pool account with the broker’s custodian but start reflecting in your trading account immediately after buying.
Unlike with most Indian brokers, margin trading and short selling will not be allowed with a foreign broker. You will be able to buy shares only when there is sufficient cash in your account and sell shares only when you already hold them.
You can have the access to all your transactions, account history and ledger balance on the trading platform. You will also get the contract notes for your executed trades in your mailbox.
Which brokers are providing this facility here in India?
Only a few Indian broking companies like Kotak Securities, ICICI Direct, India Infoline, Reliance Money and Religare, are offering these trading services to Indian investors.
In 2007, ICICI Securities became the first company to have a tie-up with US-based broking firm, Penson Financial Services, for its overseas trading platform with access to NYSE Euronext and Nasdaq.
While Kotak Securities has a strategic agreement with Singapore’s Saxo Capital Markets, the capital markets arm of Denmark-based Saxo Bank, India Infoline has such relationship with US-based Interactive Brokers, LLC. Reliance Money also has such an arrangement with US-based optionsXpress.
Kotak Securities provides access to 24 international stock exchanges through its trading platform “Kotak Traderâ€. These exchanges cover all the big markets and almost all the big stock exchanges including New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE), Australian Stock Exchange (ASX), Hong Kong Stock Exchange (HKEX) and Singapore Exchange (SGX) among others. Here is the link to check the markets you can trade in with Kotak Trader.
You can transact on over 80 international stock exchanges with India Infoline whereas, ICICI Securities and Reliance Money facilitate you to transact only in the US markets.
Kotak Trader offers trading in equity markets, ETFs, ADRs, GDRs and REITs through 100% cash and carry system. But, this service is available only for individuals. Partnership firms, HUFs, trusts, NRIs, corporates etc. are not allowed to open an account with Kotak Securities for their overseas investments.
Different companies require different minimum amount to open a trading account. Kotak Securities require you to make an initial deposit of USD 10,000 or INR 5,00,000, whichever is higher, within a period of 3 months from the date of account opening. With India Infoline also, this amount is USD 10,000 but ICICI Direct and Reliance Money allow you to trade with a minimum initial deposit of USD 1,000.
Kotak Securities charges Rs. 750 to open such an account and 0.75% of the trade value as the brokerage, while ICICI has an account opening fee of Rs. 999 and the transaction charges of USD 9 or 0.75% of the trade value, whichever is higher. India Infoline does not have any account opening charges.
As your overseas investments will be made in some foreign currency, your investment gain or loss will also be linked to the movement of that currency. So, if you invest in some stocks in USD and USD appreciates in value, then it would add to your gains or lower your losses. e.g. Suppose you paid Rs. 50 per USD at the time of investment and liquidate your investment when the USD appreciates to Rs. 55, you will get back Rs. 55 per USD.
The process of transacting in equity markets overseas is not that complicated, but you need to understand the dynamics of global equities. You can understand the revenue sources for Bharti Airtel in India but it is difficult to do so for SingTel in Singapore.
There are some other ways also in which you can invest in overseas markets; I will do another post to cover those options.
Great Article. Thanks for the info. Does anyone know where I can find a blank “BTR Form” to fill out?
I want to trade in forex market.how can i trade with overseas forex broker from india.how can i do transactions from local bank account to forex broker.is there any solution of this problem.
Thanks and regards.
Is it possible to buy other country currency in Indian stock market?
Hi Shiv, I work with a US based company and I have been awarded with certain ESOPs (scrip is listed on NASDAQ) from my company through Merrill Lynch (ML) limited transaction US demat account. My employer and ML have tie up due to which ML charges NOTHING for demat account. I am about to leave this company and if I want to hold the ESOPs I have to pay ML US $ 200/annum towards demat account maintenance charges or I have to sell the mature ESOPs and close the ML demat account. Is it possible that I can transfer the ESOPs to say ICICIdirect/Kotak/India Infoline demat account.
Hi Team, I have some ANZ shares on ASX, pleas confirm who will help me selling those shares. I am working in Bangalore India.
This is not the right place for that Mahantesh, you have to get in touch with your company to see how this can be done.
Hi Shiv ,
Wanted to know if there are any informative stock sites (eg: Moneycontrol.com in india) , are there any similar sites made for NYSE .
Thanks
Ameya
Should I necessarily use one of the Indian trading houses? Their rates and performance are rather poor compared to say TDAmeritrade or any other US (or I am sure rest of the world) based brokerage houses. Are there any restrictions from the Indian govt on this?
I just wanna ask that can our Ordinary shares can be converted by these brokers into ADR and can we sell them in foreign market.
How can one (an individual) become a beroker to deal in foreign shares in India? What are the requirements and rules/laws?
Dear Sir;
One of the agency approached me for foreign direct investment with good interest returns. I am planning to invest in foreign companies through FDI. Please advise the procedures
Hello Manshu, Very informative post there . Can you kindly guide me on the following ?
1. I am a resident Indian working for a US based company listed on the NSADAQ and I wish to re-invest the proceeds from sale of some of the matured ESOPs I have , into a few other identified value stocks on NASDAQ – how would you advise me going about doing this ?
2. I already have a brokerage account opened with a US broker through whom normally the
ESOP sale transactions are made by the employees.
3. Is it possible to use the same account to hold the ESOP sale proceeds and use the corpus to purchase other stocks through this broker ?
4 OR should I first receive the sales proceeds in India into a Resident Foreign currency account first and then purchase the overseas stocks ?
5. If so is it a must that I have to use an Indian broker like Kotak Trader or can I use the existing US broker directly ?
Hi Oommen, My requirements are exactly same as you mentioned. Were you able to get any solution?
Hi,
I have the same queries. Did any of you get any clarity on this?
Please give list of foreign companies listed in india & good return.
I wish I had access to such a list but unfortunately I don’t.
I have gone through your article dated 26th Non 2012 regarding the investment in the shares of Foreign company by a Indian resident. It was very knowledgeable & informative article which help me understanding all the relevant point with respect to investment in foreign co. shares.There is one point on which i need some more clarity for better understanding.
Query:”whether i can do margin trading and short selling in foreign companies shares. what are the possibilities of doing these transaction”
Please elaborate in detail so that it can be helpful for me.
No, as far as I know, this is not possible.
Hi
go thru article once again.. the writer has clearly mentioned it’s not possible to shorting and margin trading in most of the broking houses.
Hi,
I’ve been trying to get more information on investing abroad (specifically the US) and some of these services do not allow for purchasing US MFs (Kotak only allows for ETFs). Is there any regulation that prevents Indians from uying US MFs?
Thanks
Christina
Hi Shiv Kukreja
Thanks for answering my query with this researchful post 🙂
When Facebook came out with its IPO, I heard that Resident Indians can also invest in the same but didnt know how to do it… but after this insightful post – I know what to do next 🙂
There’s a difference between how the American IPO market works and how the Indian IPO markets works, and in the US, ordinary investors can’t subscribe to an IPO like India. They can buy the stock only after it lists and starts trading. For the IPO, the investment bankers sell the stock to select investors only, and for popular IPOs even those investors aren’t able to get as much as they want.
Probably SEC does not want the ordinary investors to burn their fingers in IPOs of companies like Facebook etc. and let the market forces make the prices a little reasonable for the ordinary investors to invest. I read that the market price of Facebook shares fell quite a bit the day lock-in period ended for some of the large stockholders.
That’s Great, thanks Karan !! 🙂
There is the option of directly opening accounts with a foreign broker. Interactive broker, TD Ameritrade are some of the good ones. TD Ameritrade offers features like free ETF trading in 100+ ETFs, I’m not sure you would get those features when going through an Indian intermediary broker and it should be better to avoid the intermediary add-on charges. There’s no reason to pay intermediary costs.
What I hate is that Indian regulations do not permit margin accounts in foreign brokerage accounts. This is only because the regulators are worried about forex effects during times of stress and margin calls. Because they don’t know how to do their job, we have to be restricted from opening a margin account which is a fairly basic thing. Terrible.
Thanks Shaviv for this info! I did not know that Interactive Brokers, LLC provides these services on its own also, apart from its tie-up with India Infoline. I think there is no such info on the website of India Infoline about its relationship with Interactive Brokers. ETF trading is available with Kotak Trader also. TD Ameritrade provides services for U.S. markets only or some other exchanges also?
IB allows Indians to create two accounts – a domestic for NSE/BSE which I have (directly with IB, not through Infoline) and/or an international one that I haven’t looked into. My account was opened a couple of years back, so don’t know if they have stopped/changed these options. I wouldn’t think so. Their commissions and trading interface were quite a bit better than all other options: http://interactivebrokers.co.in
Afaik, TD Ameritrade is only for US exchanges. The thing is, US exchanges have such a wide array of ETFs and mutual funds covering all countries, etc that one does not feel the need to go to another exchange. As an example, there is a small cap ETF for Indian stocks listed in US exchanges for the last 3+ years, whereas we don’t have any such ETF in India! And, there was only one Reliance mutual fund that was released a year or two back which focused on small caps, Point is, there is good coverage of other countries on US exchanges so one doesn’t have to go elsewhere. Ofcourse, if you are scared of maintaining dollars (due to exchange rate risk) that is a different story.
I’m sure Kotak offers ETF trading in US, but I would be pleasantly surprised if Kotak provides the commission-free ETF trading in select ETFs that TD Ameritrade offers: http://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp?fromSectionLeftNav=true
Anyone opening an account with TD via Kotak should ask for this feature, if not available already.
Thanks Shaviv for this info!
You mentioned “Anyone opening an account with TD via Kotak should ask for this feature”. How can one open an account with TD via Kotak? Is TD associated with Kotak also?
Also, I want to get clarification on – how does TD Ameritrade provide commission-free ETF trading? Is it totally expense-free and how does it earn on ETF transactions then?
Sorry, I had some confusion and thought that Kotak has a tie up with TD based on other comments over here. It does not look like it has and I’ve edited my previous comment accordingly.
Hah, I like the skepticism and unease over the free ETFs. Nothing is free in finance. 🙂
a) They have trading restrictions. TD will charge commission if the ETF is traded within a 30 day hold period. With the 30 day hold period, the ETF basically becomes like a no-load mutual fund.
b) Most likely, TD will have an arrangement with the ETF provider and share some of the fund expense fees. It could be a function of the AUM coming from TD. By the way, other brokers also offer this feature, but TD has the largest number of commission-free etfs.
Now, it doesn’t look all that surprising, does it? 🙂
Regards,
– Vivek Sharma
By the way, I changed my ID from DJ to shaviv. We exchanged a few comments on debt funds and issues. Someone else is also using DJ, so I changed.
Thanks Shaviv for the clarification! Different brokers adopt different strategies to attract investors’ money. Its good to know. I like Indian markets the most, so do not want to diversify much.
Probably you should use your pic here for us to differentiate you from others and then you’ll not be required to change your ID if one more Shaviv comes after a few days. 😉
I changed it to Shiv Kukreja when one more Shiv appeared here on OneMint. 🙂
Great post; have been looking for this kind of info for a while now.
What would it take for me to be able to buy the shares of Banco Santander, a
bank listed in Spain? Do any of the Indian intermediaries listed allow
one to buy stocks listed in that country?
Thanks S Priya!
Saxo Capital Markets, in a tie-up with Kotak Securities, provides broking services for 24 international stock exchanges including Sistema De Interconexion Bursatil Espanol (SIBE) in Spain. A link has been given above in the post to check the markets you can trade in with Kotak Trader. Here is the link –
http://www.kotaksecurities.com/internationaleq/intexchanges.htm
Fantabulous! Keep this great show going.
Thanks again! With this kind of motivation, the show will definitely continue.
Should I necessarily use one of the Indian trading houses? Their rates and performance are rather poor compared to say TDAmeritrade or any other US (or I am sure rest of the world) based brokerage houses. Are there any restrictions from the Indian govt on this?
I think you can’t open a new account with a foreign broker on your own.
Hi Vivek… As mentioned above, an Indian broking house will just act as an introducing intermediary between you and the foreign broking house. So, you will be using the trading platform of the foreign broker only. Like in the case of Kotak Trader, it is the trading platform of Saxo Capital Markets and not Kotak Securities.
I had checked with ICICIDirect to open this foreign brokerage account. The details they had provided matches with what you have mentioend here. However for two of my queries, I did not get right response from them.
1 – Tax on gains: They were very clear that being a foreigner I don’t have to pay any tax. But my common sense tells me that uncle Sam, doesn’t give me any freebie. I think I will have to pay tax (may be on dividend also). To file it, I have mail the tax return forms from india or submit it in their consular office. Thus calculating this and filing it is a headache.
2 – How do I mention it in my will? – As far as I am aware fo we need to have separate wills for assets in different countries. This is not a problem. But when my dependents try to claim it when I am not here, I am not sure how much of an hurdle they face.
So, right now I am investing small amount in stanchart IDR and NASDAQ ETF which are listed in our stock exchanges. Although there are many mutula funds investing in foreing assets, I haven’t gone there as their cost is very high (fund of funds!!).
Hi Bhushan… As far as I know, as an Indian investor, one needs to pay long-term capital gain tax at 20.60% here in India. If you book your profits before completion of one year, then the short-term capital gain tax would be as per your income-tax slab. I am not 100% sure but I think these trading accounts should have nomination facility and there should not be any problem related to the assets transfer. ETFs certainly are cheaper investment options as compared to FoFs.