Every Indian stock market trader wishes to invest or buy stocks directly from a foreign market. Most have their eyes on FAANG stocks, and there are two ways to enter the foreign market.
They are: the mutual fund route and buying the stocks directly at exchanges abroad. The first option is mutual funds, with multiple fund formats offering the way.
One of them is the fund of funds (FoFs) that will help to invest money abroad. One can purchase and redeem Indian rupees, while the conversion will be taken care by them.
Another way of funding is exchange-traded funds or ETFs. They are similar to FoFs, but the difference is that they are traded in exchanges such as NSE or BSE.
One can trade in rupees, in a way one trades in any equity stock, through a trading account with a stockbroker.
FoFs, ETFs and other similar funds are known as feeder funds. They collect the money here in India and invest in a fund abroad, i.e., feeding into another fund. These may also buy stocks at exchanges abroad.
They can also use it to buy stocks at exchanges abroad. These are fully global-focused funds.
In the above-mentioned funds, the purchase of equity stocks can be done directly, for which funds may be remitted abroad, as per the Liberalised Remittance Scheme (LRS) guidelines. The ceiling for such transactions is $250,000 per financial year per person.
At the same time, there are online service providers where one can open their account and execute the investments.
Among the options, mutual funds are more convenient because everything is offered as a package, including research, stock selection, tracking, execution, etc.
Then there is an expense charged for it, known as total expense ratio (TER). The returns are reflected in the NAV of the fund, net of TER.
If one is doing this alone i.e., buying foreign stocks by remitting funds abroad through LRS, then everything has to be done alone. One has to identify stocks, locate a stockbroker for the execution, and track the stocks.
A ready-made model portfolio might be available with the service provider, which can be replicated at the click of a button, but there would be fees charged for it. It has a limit of $250,000 per financial year, but it is not an issue for most people.
This limit will only affect the HNIs that have other expenses abroad, e.g., child’s education. The positive side of doing it solo is that it saves the annual expenses charged to a fund. There will be fees for accessing other funding packages.
FoFs are taxable as debt funds, even if the underlying investments are equity. For other straight funds buying equity stocks will be levied by a tax as debt funds.
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