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Monday, July 18, 2011

Did you know? Overseas Investments by resident Individuals

When constructing a portfolio, most investors think of diversification across assets to spread the risk. Another way to do this is to diversify across geography and the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme allows Indian investors to invest abroad. 

How much can you invest?

If you are an Indian resident, you can remit or make purchases overseas up to $200,000 (Rs. 89.20 lakh) every financial year. You are not required to repatriate any earnings generated out of investments even if it takes your total investment limit above $200,000. In other words, only the principal you invest is subject to this limit.

The limit is in addition to any amount that you may have carried overseas while travelling, or for studies and medical treatment, but it includes any amount sent overseas as a gift or donation. 

There is no limit on the frequency of transactions.

Where can you invest

You can buy and hold immovable property, shares or fixed-income instruments outside India without RBI’s prior approval. You can also invest in mutual fund units and exchange-traded funds. 

Where you can’t

What is not permitted is buying and selling of foreign currency convertible bonds issued by Indian companies and foreign exchange trading. The regulation does not allow margin trades; you can buy securities only if there is enough money in your trading account. So you can’t trade in futures and options or short sell a security.

Other limitations

Under this scheme, you can’t invest in Bhutan, Nepal, Mauritius or Pakistan. You also can’t make remittances directly or indirectly to countries identified, from time to time, by the Financial Action Task Force as “non co-operative countries and territories”.

Investing process

Individuals can open and maintain foreign currency accounts with banks outside India for carrying out transactions; you can even link them to your overseas trading account. Your broker can help open the trading account. You start with completing your know-your-client formalities and fill up an account opening form for an overseas trading account. Your broker will then contact the overseas broker partner along with your documentation. The foreign partner will then send account details where the money needs to be sent. 

Money is usually sent through a wire transfer, which takes about three-four days. So ensure you have sufficient money in your account if you are investing in markets abroad.
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