Indian economy is a saving economy that is, people in India believe in saving a part of the income earned by them for future use and emergencies. And saving goes parallel to investments. The greater the savings, the greater are the investments of the individuals in the form of deposits with banks such as recurring deposits, fixed deposits, and greater investments in instruments of the stock market such as equities, bonds, mutual funds, insurance, ETFs, etc. Moreover, an increase in savings by the people leads to an increase in public deposits with the government which in-turn leads to better infrastructure, health, and educational facilities provided by the government.
What is the stock market?
A stock market is a place where buyers and sellers come together to trade overstocks, mutual funds, currencies, etc. and make short term and long term investments to gain profits overtime.
There are two stock exchanges in India,
1.National stock exchange
2.Bombay stock exchange
which are been regulated by the Securities Exchange Board of India (SEBI).
Who can invest in the stock market?
An indusial who has a Demat account and a Trading account linked with the bank and a minimum of 18years of age.
For the investments in the stock markets, there is no minimum or maximum amount to be invested and with the simple knowledge of accounting and business understanding can invest in stocks markets or they should take the expert advice like PMS managers or Investments advisors who are registered in our platform (Pvot)
Stocks/Equities
Stocks define the ownership certificates of any company. If you hold stocks of a company means you have the ownership right in that company to the extent of the value of your shares. Equities do not carry a fixed interest rate but are eligible to receive dividends when the company earns profits.
When we invest in stocks we have to think like a businessman who is managing that business and understand the risk associated with it and the available opportunity that can be taken by the business
Bonds
Bonds are certificate of debt issued by the government or any company to raise capital for specific projects with a promise to pay a specified amount of money on some later date. The period for bonds could range from a few months to up to 30 years. The main risk with the bond are the ratings and the YTM or interest rate risk
Mutual funds
Mutual funds are professionally managed investments that are funded by shareholders. It deals in investments in the fields of stocks, bonds, and money market securities and is primarily regulated by the Security Exchange Board of India (SEBI) and AMFI.
In order to get good returns, you need to diversify well. Sometimes you can do it yourself but to get better returns, you can take a good help from Portfolio Management Service Providers.
You can visit & take help from one of the renound & prominent PMS providers in the Field, Moat Financials Pvt Ltd handled by Fund Manager Mr. Koushik Mohan.
What are the foreign equities?
Buying foreign equity refers to making a Foreign Portfolio Investment by an individual or a company.
FPI is defined as investing in the financial assets of a country available on the exchange such as stocks, bonds, ADRs, mutual funds, etc. Portfolio investments usually have a shorter investment period and hence are more liquid. Investors investing in FPI are generally average investors because they require a lesser amount of money and research and expect to quickly realize profits on their investments. Also, FPIs do not provide direct ownership and managerial rights to the investors due to its short term nature.
Can Indian investors invest in foreign equity?
Yes, Indian investors can invest in foreign equity by way of Foreign Portfolio Investments with certain regulations imposed by the Securities Exchange Board of India. The income generated by way of FPIs is also subject to tax payments by the investors which has been recently increased to 15% to 25% for the one's earing between 2crore to 5crore and 37% for earnings above 5crore in the budget 2019.
Ways to invest in foreign equities
In the current times, economies are not bound by geography and are connected in every means possible because of the spreading up of globalization. Investors too have numerous ways to invest their money in the country as well as around the globe.
The different way an investor can invest in foreign equities are:
American Depository Receipts
ADRs are an advantageous way to buy foreign stocks. Foreign companies use ADRs as a chance to establish a U.S. presence and to raise capital. ADRs can be sponsored or unsponsored and have several levels. These companies are listed, traded, and settled just like US shares. This makes ADRs an easy way for the average investor to hold foreign stocks.
For example: - The world’s largest IPO, Alibaba Group Holding Limited (BABA) is an example of a Chinese giant raising capital via an IPO and trading in the US as an ADR.
Global Depository Receipts
GDRs are also a type of depository receipts. Under this, the depository banks usually issue foreign shares, mostly Europe, and make it available for foreign investors within and outside the US.
They are mostly offered to institutional investors via private offerings and are denominated in US dollars or Euro and even British pound.
Mutual funds
Indian investors are enthusiastic about exploring international markers and easy investing options can opt for international mutual funds. These funds are similar to any other MF in terms of their benefits and working process, the only difference is that their costs are higher and they represent the foreign stocks in the portfolio.
Direct investment
Direct investment can be done in two ways: first by opening a global account with a broker of your country and the second by opening an account with a local broker in the country targeted.
However, one should keep in mind that direct investment involves major costs, tax payments, and technical support and is thus complicated. Therefore, it is suited for active and serious investors and not recommended for short term or casual investors.
Exchange Traded-funds
They are a very convenient way of investing and accessing foreign markets. ETFs can allow you to invest globally as well as place bets focused on a single country depending on the type of fund you choose.
However, one should gain full knowledge about the costs, fees, liquidity, etc. before investing in foreign ETFs.
Things to keep in mind before investing in foreign equities
The tax brackets on the gains made in international stocks are high which ranges from 15% to 35% varying with the gains.
The maximum amount which can be invested by an Indian in the foreign market is a maximum of Rs1.7crore.
There always exists a risk of change in currency rates and variations in the international stock market which could lead to huge losses.
Since there is a risk of fluctuations in exchange rates, foreign stocks are usually more volatile and hence considered riskier.
Even though the world is connected and we get every single information about what is going on around the globe, there are chances that the investor may not be well versed with the needed information which might lead to wrong interpretations and estimates.
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