Overseas Direct Investment – 7 Factors to consider

Diversification is the key! And your portfolio should be a reflection of it. If you want to gain exposure to different markets, industries, and currencies, you are at the right place. 

Long story short, investing outside of India can also be complex and require a significant amount of research and planning. But we have simplified it for you. In this blog, we will discuss the factors to consider before investing and what are the types of investments outside of India. Let’s dive in.

Factors to consider before an overseas direct investment:

1. Identify your investment objectives and risk tolerance

Before an overseas direct investment, it is important to first identify your investment objectives and risk tolerance. Are you looking for long-term growth or short-term gains? Are you comfortable with taking on higher levels of risk or do you prefer more conservative investments? Knowing your investment objectives and risk tolerance can help you determine the types of investments that are most suitable for you.

2. Research different investment options

Once you have identified your overseas direct investment objectives and risk tolerance, the next step is to research different investment options. This can include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and real estate investment trusts (REITs). It is important to research the investment options available in different countries and understand their potential risks and returns.

3. Consider the country’s political and economic climate

Before an overseas direct investment in a particular country, it is important to evaluate the country’s political and economic climate. This can include factors such as government stability, inflation rates, and currency exchange rates.

4. Factor in the taxation

If you are investing in a particular country, you must be able to understand the tax implications it comes with. On top of taxation, one has to understand the regulations and policies applied to assets. For example, real estate taxation is by far different abroad than it is in India.

5. Open an international brokerage account

To make an overseas direct investment, you will need to open an international brokerage account. This can be done through a local bank or brokerage firm that offers international trading services. It is important to research different brokerage firms and compare their fees and services to find the best option for you.

6. Transfer funds to your international brokerage account

Once you have opened an international brokerage account, the next step is to transfer funds to the account. This can be done through a wire transfer or online banking. It is important to understand any fees or restrictions that may apply when transferring funds internationally.

7. Monitor your investments

Finally, it is important to monitor your investments regularly and make any necessary adjustments based on changes in the market or your investment objectives. This can include re-balancing your portfolio, selling investments that are no longer suitable, or investing additional funds in areas that show potential for growth.

Now that you know the process involved, let’s have a look at what are the types of investments you can make outside of India.

Types of Investments Outside of India:

1. Foreign Mutual Fund Investment: Indian individuals who are hesitant to invest directly in foreign entity shares may consider participating in international mutual fund schemes that provide exposure to international markets and invest in foreign equities.

2. Foreign Exchange-Traded Funds Investment: Exchange-traded funds (ETFs) are funds traded on stock markets daily, and they provide access to worldwide funds without the need for an international trading account.

3. Listed Foreign Shares Investment: Resident Indians can invest in shares of international corporations listed on overseas stock markets. They can open an overseas trading account with an Indian broker that has a tie-up with an international broker.

4. Investment in Foreign Index Funds: Indian investors can invest in index funds that track the performance of foreign stock market indexes, such as the Motilal Oswal S&P 500 Index Fund.

5. Listed Debt Instrument Investment: Indian citizens who want to invest in a foreign market and receive a consistent income stream can do so by purchasing listed bonds issued by foreign governments or listed corporate bonds issued by foreign companies.

6. Direct Equity Foreign Investment: Indian investors can also invest directly in shares of publicly traded corporations in the United States through Indian brokers. However, direct foreign equities may be more expensive than mutual funds or exchange-traded funds.

7. Property Investment Abroad: Investing in real estate abroad is an option, but it requires more money than other investment choices. It’s important to note that real estate does not have the highest level of liquidity among all investments.

Investing outside of India can offer many potential benefits, but it is important to understand the risks and complexities involved. By following these steps and conducting thorough research, you can make informed investment decisions and potentially achieve your investment objectives.