How to Invest in Foreign Stock Via Mutual Fund?
The Indian stock market lists more than 5,500 companies, but many stock brokers are more interested in foreign companies. Marketers put a lot of money into tech stocks like Google (GOOGL), Apple (AAPL), Netflix (NFXL), and Twitter (TWTR). The main factor for this is easy to understand: even though these stocks are traded on exchanges outside India, the companies listed above are still seen as leaders in their fields. Since the risk is lower, it’s fine to hold on to things for longer.
If you live in India and want to invest in foreign stocks, you might not know how. This is clear because neither the Bombay Stock Exchange (BSE) nor the National Stock Exchange (NSE) of India trades in these companies (NSE). So that you don’t have to be concerned about it, this post discloses how to invest in foreign stocks via a mutual fund.
What do Foreign Stocks Mean?
Foreign stocks are shares in companies that are not based in India. Buying foreign stocks is a great way to spread out your risk and take advantage of the growth potential in emerging economies.
How to Invest in the Foreign Stocks?
You can invest in foreign stocks in two different ways.
- Investing directly in stocks.
- Investing in stocks indirectly through mutual funds
Investing Foreign Stocks via Mutual funds
You can buy foreign stocks via mutual funds. But doing this requires much time spent studying and keeping an eye on things. If you want to purchase foreign stocks, these mutual funds are good for you:
Fund of Fund (FoF)
When looking for a mutual fund to invest in foreign stocks, a fund of fund (FoF) should be your first choice. These mutual funds buy shares of foreign companies. You can not only protect yourself from the ups and downs of the Indian stock market, but you can also watch for signs of change in the global economy. In light of the recent drop in the Sensex, one way to fight this trend could be to put money into a fund of funds that invests in international stocks.
Exchange Traded Fund (ETF)
Exchange-traded funds are the second way to trade foreign stocks on the market. The average prices of ETFs are unstable and can change many times a day. It’s being bought and sold all day long. On the other hand, mutual funds are usually only traded once a day after the market has shut down. Exchange-traded funds that track international indexes can be used to enter the foreign stock market. You don’t need to participate in international financial markets to use these resources. Exchange-traded funds (ETFs) that trade on the local market are also available through brokers in India.
Ensure that the ETF you want to invest in is registered with India’s Securities and Exchange Board. When you buy exchange-traded funds, you lower your investment risk because the performance of these funds is mostly the same as that of an index. Also, the cost ratio of exchange-traded funds is much lower than that of mutual funds. If you want to invest in exchange-traded funds, you’ll need a brokerage account with a company in India or outside India.
Global Mutual Funds
You can enter the international investment market with access to international mutual fund schemes. Several of these mutual fund plans follow the markets of Asia and the Pacific, but the vast majority follow the U.S. market. Some plans only buy foreign stocks that trade on the U.S. market, but they still buy domestic stocks.
Benefits of Foreign Stocks
There are many good things about investing in foreign stocks, such as:
- Investors like foreign stocks because they give them more ways to make money.
- Buying foreign stocks is a good way to learn about different economic problems.
- Investing in a foreign market can also spread your risk and keep your portfolio from being too volatile.
Things to Think about before Buying Foreign Stocks through Mutual Funds
Before investing in international mutual funds in India, here are some important things you should think about:
Risks
Investing in these funds comes with many risks. Currency risk is a key factor. So, if you buy foreign stocks via a mutual fund focusing on the US and the rupee falls against the dollar, the NAV( Net Asset Value) goes up. This is because each dollar buys more rupees. In the same way, if the rupee goes up, the NAV goes down.
Large-scale Factors
The political situation of a country and its economic and social factors can greatly affect how well the fund does. So, you need to know about these things and keep an eye on the market.
Multiple Economy Benefit
When you invest in foreign stocks via mutual funds, you can take advantage of the growth in more than one economy and get a better return. It also helps you spread out your investments and make your portfolio better.
Tax
Most of the time, mutual funds put most of their money into stocks and other instruments related to the stocks of international companies. These funds are treated as debt funds for tax purposes. So, the rules for long-term and short-term capital gains for debt funds also apply to these funds.
Top 5 International Mutual Funds for Foreign Stocks
| Sr. No. | Fund Name | NAV(Till Date)(INR) |
| 1. | Franklin India Feeder Franklin US Opportunities Direct Fund-Growth | 47.3 |
| 2. | Edelweiss Greater China Equity Off-shore Fund | 37.1 |
| 3. | ICICI Prudential US Bluechip Equity Fund | 48.6 |
| 4. | Nippon India US Equity Opportunities Fund | 23.4 |
| 5. | PGIM India Global Equity Opportunities Fund | 28.5 |
(Data as of 25 November 2022)
Wrapping Up
If you want to diversify your investment portfolio, you can start trading foreign stocks from India and investing in international markets. Because there is so much information online, it is easier than ever to research companies and their stock prices.
However, keep in mind that investing in stocks on a global scale comes with benefits and risks. So, it’s important to think about everything and ensure your investment plan fits your needs and level of risk tolerance.
Visit Piramal Finance and look at their blogs and products to learn more about the stock market.