The AMFI or Association of Mutual Funds in India has released a notification asking AMCs operating under its wing to stop taking fresh investments, both SIPs and lump sums in foreign securities. As per RBI’s directives, mutual funds operating under SEBI has a total cap of $7 billion in foreign investment. Additionally, the separate investment cap on ETFs or Exchange Traded Funds is currently at $1 billion.
At present, investments in foreign securities have almost touched this $7 billion mark, which prompted this sudden notification from regulatory bodies.
What Does It Mean for Investors?
It is undoubtedly a significant blow to Indian investors, who preferred to utilise this channel to get their hands on overseas stocks. However, not everything is lost; there are other ways to invest in foreign companies.
To start with, one can take advantage of RBI’s Liberalised Remittance Scheme or LRS. Under this plan, the apex bank of India enables a citizen to invest up to $2,50,000 per year without worrying about remit. This scheme has played a part in generating further encouragement for foreign investment among Indians.
Apart from that, various online investment platforms enable Indians to directly invest in the foreign market, especially in the USA. In this regard, a regular investor has two options, stocks or ETFs. An advantage of making investments in the USA is the availability of fraction investments. This comes in handy in the case of expensive stocks, as one has the opportunity to invest as little as $1.
Let’s Talk Strategy Now!
Investments in stock markets are not risk-averse; hence, experts suggest one should read up and be conservative in the initial days to learn how a market operates. This strategy is also applicable when one plans to invest outside India.
Let us stick to the USA as an example.
For novice investors, jumping into the stock market can be a difficult pool to navigate through. Instead, they can start with ETFs. Since these funds follow a particular index like NASDAQ, one need not manage the whole operation directly. Additionally, like mutual funds, these funds diversify one’s investment, which can generate a better return.
Moreover, the expenses ratio of ETFs is comparatively low as they are passively managed.
With ETFs’ help, one can also get a chance to make a sector-specific investment. It means they can either invest in energy, healthcare, pharmaceuticals, or any segment that they prefer.
The volatility of the US market has not touched the Indian investors. They are buying in this dip with a long-term vision. Investment data from various platforms convey the same theme.
Nonetheless, one must not be influenced by market trends and invest according to their understanding and financial capacity.
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Frequently Asked Questions
What is the automatic route of investments?
The automatic route of investing is where one need not take any prior approval from the Reserve Bank of India. Here one can approach respective organisations or regulatory bodies and complete their necessary process for this purpose.
What is the approval route of investments?
Under the approval route of investment, individuals need to secure prior approval from the RBI and then make an investment.
Can I acquire a stake in an overseas company through the ODI route?
Yes, you can use the Overseas Direct Investment route to acquire a stake in a company overseas. However, you must comply with the necessary regulations of both India and the other country.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.