Read the Fine Print(part-2)

How to Invest

The different modes in which one can invest overseas in stocks, bonds, currencies, commodities, realty, et al include:

1. Direct Foreign Investment

2. Domestic Mutual Funds investing abroad: Sebi registered mutual funds have been cumulatively permitted to make overseas investments of up to $3 billion subject to Sebi guidelines. Further, such mutual funds which were hitherto permitted to invest in equity of listed overseas companies provided the overseas listed company held at least 10% in a company listed in India, have now been permitted to make such investments without the requirement of 10% reciprocal shareholding in a Company listed in India. Currently, only a handful of domestic mutual funds like Franklin Templeton and Principal PNB have launched funds which invest in overseas securities.

3. International Mutual Funds

4. Domestic companies with large foreign business/service exposure (indirect foreign investment)

5. Securities, Brokerage or Fund houses.

Recent Announcements in the Union Budget 2007-2008

The honourable Union finance minister, P Chidambaram, has announced in his Union Budget 2007 -2008 speech that he proposes to converge the different regulations that allow individuals and Indian mutual funds to invest in overseas securities by permitting individuals to invest through Indian mutual funds.

Hence, we may expect some changes/liberalisation in foreign investments norms soon.

Asset Allocation

One needs to carefully do the asset allocation between local and international investment. Although there is no ballpark figure, it all depends upon the risk-return profile of the investor and investment opportunity. However, for a conservative investor, an asset allocation of 5 to 20% towards international investments is fairly reasonable.

Conclusion

Although the Indian stock markets have seen strong growth over the last 3 years, the recent fall indicates that going forward, the growth could slow down. Thus, with the liberalisation of foreign investment norms, investing outside India is (shown become) comparatively easier than before, but before treading into foreign waters, one needs to consider the pros and cons thereof carefully.

Read the Fine Print(part-1)

"Learn about the process & restrictions before you plan to invest abroad"

We've heard the axiom "The world is your investment landscape". With the Reserve Bank gradually liberalizing the provisions relating to foreign investment, let's see how can one really go about investing abroad and what are the crucial factors one needs to consider while investing abroad. Moreover, the Union Budget 2007 -2008 has also made some announcements to enable foreign investments.

Why Invest Abroad?

As the renowned economist Adam Smith said "Never keep all your wealth in the country where you live because anything can happen - and usually does". As per Goldman Sachs, in the next 50 years, Brazil, Russia, India and China - the BRIC economies - could become a much larger force in the world economy. Moreover, some of the European countries have witnessed goods economic/financial progress over the last few years and so have certain USA companies investing in emerging markets. The pros and cons of investing abroad are:

Foreign Investment Restrictions

Investment outside India by residents of India has been restricted since ages due to the lack of foreign exchange reserves. However, with the gradual build-up of foreign exchange reserves, RBI has been constantly relaxing the law relating to foreign investments.
Till recently, RBI permitted resident individuals to:

1. Invest in the following instruments without any upper limit:

a. Equity of listed foreign companies, who in turn have shareholding of at least 10 per cent in companies listed on a recognized Stock Exchange in India as on January 1st of the year of investment, and

b. Rated bonds and fixed income securities provided however the rating should be at least A-I/ AAA by Standard & Poor or P-a/Aaa by Moody's or FI/ AAA by Fitch IBCA etc. for short -term obligations and corresponding ratings for long-term ones.

2. Remit up to $25,000 per calendar year (January to December) for any purpose without any distinction between the transactions being on the current or capital account.

3. Remit up to $5,000 per remitter/donor per annum towards gift and donation each aggregating up to $10,000.

Recently, RBI issued AP (DIR Series) Circular No 24dated December 20,2006, which has enhanced the limit from $25,000 per calendar year to $50,000 per financial year (April to March) for any current/capital account transactions. However, the above revised limit of $50,000 includes remittances towards investments in overseas companies (the requirement of 10% reciprocal shareholding in the listed Indian company by such overseas company has been dispensed with), gift and donation.