It is now possible for Indian investors to invest not only in the American stock market but also in the stock markets of Asian countries like Japan, South Korea and Taiwan. However, experts say that investment abroad is allowed under the Liberalized Remittance Scheme (LRS) of the Reserve Bank of India (RBI), but it is not easy to reach every market. Let us know what the experts think about this.
Investing in shares of Japan, South Korea and Taiwan
According to Vijay Kuppa, CEO of InCred Money, Indian investors can invest directly in shares, bonds and funds of these countries under LRS. Nitin Dongre, Director and CEO of Anand Rathi International Ventures IFSC, says that under the LRS scheme, Indian residents can send up to 2.5 lakh dollars (about Rs 2 crore) abroad every financial year. This amount can also be used for investing in global markets.
Are investing in all three markets equally easy?
It’s not like that. According to Gaurav Arora, head of research at Sahi, every market has its own challenges. Investing in the Japanese market is relatively easy because many global brokerage platforms provide this facility. But investing directly in South Korea is a bit complicated, as many international platforms do not allow Indian accounts to trade there.
The situation is more difficult in Taiwan. There, foreign investors need local registration and tax ID. This is the reason why it is considered very difficult for common investors to invest directly in Taiwan shares.
What are the options for Indian investors?
According to experts, there are four major avenues of investment:
1. International Mutual Funds and Funds of Funds (FoFs)
This is considered the easiest method. However, due to the limit on foreign investment being reached, many AMCs have placed a temporary ban on new investments.
2. International ETF
One can invest in the markets of Japan, South Korea and Taiwan through country-specific ETFs listed in the US.
3. International Brokerage Account
By opening an American brokerage account, one can invest in many markets of the world. This option gives more flexibility to investors.
4. GIFT City Platform
New investment opportunities in global markets are also becoming available through GIFT City’s IFSC platform.
What risks are important to understand before investing?
While investing in foreign markets, not only stock movements but also currency exchange rates have an impact. Fluctuations in the Japanese Yen, Korean Won or Taiwanese Dollar may affect your returns.
Apart from this, these markets are more dependent on technology and export based economies, hence global economic conditions have a big impact on them.
Understand tax rules also
According to experts, 12.5% Long Term Capital Gain (LTCG) tax is levied on the profit made on holding foreign shares for more than 24 months. Whereas investments sold in less than 24 months have to be taxed as per your income tax slab.
Apart from this, it is also necessary to give information about foreign assets under Schedule FA in the income tax return. TCS (Tax Collected at Source) may also be applicable on sending more than Rs 10 lakh abroad through LRS.
Overall, there are investment opportunities for Indian investors in markets like Japan, South Korea and Taiwan, but it is very important to understand the rules, risks and tax related aspects thoroughly before investing.
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