Want To Invest In Foreign Stocks ?
In this article, we are trying to do something really stupid. We are trying to tell people whose home stock market (India) is returning 30% a year to get excited about investing in stock markets abroad which are giving single-digit returns. But first, let's go step-by-step and see why everyone is suddenly talking about investing in mutual funds that invest abroad.
What has changed?
A mutual fund wanting to invest abroad could only buy stocks in companies that fulfilled two criteria. The company must have a listed subsidiary in India (shares are listed on the stock exchange for trading). The global parent must own at least 10% of the listed Indian subsidiary. This made it very difficult for funds to scout for good companies; there are very few that pass this requirement, probably just 40 odd stocks. If the fund manager wanted to invest in good stocks, especially in technology and telecom and other sectors, he could not because these companies would not have listed Indian subsidiaries. The Union Budget in February 2006 changed this. The above restrictions have been removed. Mutual funds can now invest in whichever stocks they deem worthwhile. Moreoever, the ceiling on the aggregate investments made by mutual funds in overseas instruments has been increased from $1 billion to $2 billion.
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