Investment in stocks across sectors and indices is good for diversification, which can also be extended beyond Indian markets to foreign shores. Many investors display keen interest to invest in global stocks. Let us understand how one can make an investment in international stocks.
Preference for the international stocks
International stocks indicate the ownership of companies listed in international exchanges. There are several factors that draw investors’ interest in international stocks.
Firstly, stocks of some global companies such as Alphabet that runs Google, Tesla, Amazon and Facebook are in demand all over the world, and not only in the countries where they get listed.
Aside from this, smart investors tend to diversify their portfolio as much as they can. This diversification, at times, is not only confined to a bouquet of financial instruments, but goes beyond geographical boundaries.
This is done in a bid to make gains even when the domestic market runs into rough weather.
Things to be considered before investing in international stocks
Although investment in international stocks can be lucrative, it has a range of risks that require careful attention.
Currency risks - The market risk is a general factor that is omnipresent in every market but along with it, there is a currency risk in global investments. Currencies, by nature, are extremely volatile and unpredictable. These frequent fluctuations in the currency affect the rate of returns for the investor.
Brokerage charges - Another factor that needs attention is brokerage charges. Investment in any stock market requires the investor to seek proper assistance at every step, right from setting up a demat account to buying the stock. For this, investors are meant to engage services of a broker to carry out transactions. These charges are relatively higher in the international stock markets.
READ MORE: Looking to invest in US stocks? All you need to know about Invesco Nasdaq-100 Fund of Funds
How to invest in international stocks?
Investment in the international stocks can be done through three direct methods and three indirect methods.
Direct investment methods
The first method would be to open an international trading account through which the investor can directly buy or sell financial instruments of several foreign companies.
However, it is crucial to note that there are limitations to this method such as trade restrictions by the company, unavailability of all types of investment options at a particular institution, elaborate verification by the company that the investor is willing to invest in, and many more.
The second method entails opening of a trading account with an overseas brokerage firm. This type of registration helps investors gain a wide range of investment options but the charges for this method must be taken into account.
The third method requires the investor to carry out the trading process via a trading app on their smartphone. This method is very basic and the investor must thoroughly analyse the market conditions before investing or trading via app.
Indirect investment methods
The indirect methods are those which allow investors to choose a particular investment option and through that, investment in global stocks is made. Investment in mutual funds is a case in point.
So, investors can invest in Indian mutual funds which, in turn, invest in global stocks. The risk factor here is low. The second method involves investment in a Fund of Funds (FoF) which is a kind of mutual fund. And the last indirect method involves investment in Exchange Traded Funds (ETF).
To summarise, investment in international stocks lets investors have an edge in terms of returns and diversification. Although this kind of investment is fraught with considerable risks, an effective analysis can increase the chances of making considerable gains.