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.