Investing in foreign stocks helps an investor widen his/her investment horizon. This can be used efficiently to diversify one’s portfolio, but there are some aspects one must bear in mind before investing in foreign stocks. A few of these aspects are:
- Foreign threats: Stocks listed on foreign stock exchanges will be impacted by local factors- such as fall of a government, currency devaluation, reform policies, etc. This means that the price of the stocks will rise and fall according to the local situation that you may know nothing about.
- Investment limit: Central bank- Reserve Bank of India, allows an Indian resident to invest up to $250,000 overseas per year.
- Higher brokerages: When you invest in stocks of a different stock market, your brokerage will be charged according to that country’s currency. This means, if you invest in stocks listed in US, your brokerage will be charged in US dollar. Thus, comparatively your brokerage will be significantly higher than what you’d pay in India.
- Your returns/profits will be subject to the exchange rate, so in the case of investing in US, your returns will be in accordance with the then exchange rate.