Indian investor buy shares of a foreign company

How can an Indian investor buy shares of a foreign company?

I would highly appreciate if you could author another post on How Indians 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 authorized banks in India, including for investments in international capital markets.

To remit funds to the foreign broker 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 banker 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 brokers 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 brokers 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.