Life is simple and easy for those who know how to live it. Similarly, investing outside India is simple, easy and hassle free for those who know how to do it the right way.
Cautious Investors are always seeking new avenues for making their money work harder and explore opportunities within as well as outside India. However, many exercise limited options either because of their lack of awareness or they are not updated about the avenues available to them. Here, we talk about how you can invest outside India.
"Know what you own, and know why you own it." - Peter Lynch
Foreign Exchange Transactions
Foreign Exchange transactions in India are regulated by the Reserve Bank of India (RBI) and governed by the Foreign Exchange Management Act, 1999. Over time and opening up of India economy, the RBI has shifted its focus from regulating the Foreign Exchange to the Management of Foreign Exchange. The RBI, in a calibrated manner, has been making it easier to undertake International Transactions.
As a step towards further simplification and liberalisation of the foreign exchange, RBI had announced a Liberalised Remittance Scheme (“LRS”/ “the Scheme”) in February 2004 for the foreign exchange facilities available to resident individuals. Under the scheme, every resident is allowed to make remittance of USD 250,000 every year. The remittance can be made for all the permissible Current Account Transactions and Capital Account Transactions.
Residents are free to invest abroad up to the limit specified by RBI. Right now this limit is USD 250,000.
The Process of making investment outside India.
- Go to your bank and furnish an application-cum-declaration in the prescribed form A2. (Request the Bank for a form A2).
- Fill in the details and provide all supporting documents (including your PAN)
- Submit your application
Who can Apply?
- The Scheme is available to all resident individuals.
- It is available to minors. In case of remitter being a minor, the Form A2 must be countersigned by the minor’s natural guardian.
- Each family member can invest up to USD 250,000 outside India per year. So, if you have a family of 4, you can invest up to USD 10,00,000 every year.
Where can you invest?
You can invest in anything. This could be buying an immovable property, buying a stock, Employees Stock Options (ESOP), etc. These investments could be in any of the permissible Current and Capital account transactions. Following is a list of illustrative transactions for which a person resident in India can withdraw foreign exchange:
- acquire and hold shares or debt instruments or any other asset outside India without prior approval of the Reserve Bank.
- acquire immovable property outside India.
- purchase objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India.
- remit funds for acquisition of ESOPs.
- invest in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes, etc., under this Scheme. Further, you can invest in such securities out of the bank account opened abroad under the Scheme.
- repay the loan availed by you while you were a non-resident.
- use the scheme for outward remittance in the form of a DD, either in your own name or in the name of a beneficiary with whom you intend to put through the permissible transactions at the time of private visit abroad, against self-declaration.
- set up Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) outside India.
What are current and capital account transactions?
Current account transactions are transactions other than the capital account transactions and without prejudice to the generality of the foregoing such transactions. The current account transactions include:
- Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business.
- Payments due as interest on loans and as net income from investments.
- Remittances for living expenses of parents, spouse and children residing abroad.
- Also, expenses in connection with foreign travel, education and medical care of parents, spouse and children.
Capital account transaction are the transactions which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.
Things to keep in mind
- Ensure that the amount which have been remitted to you, from all sources, during a financial year does not increase the prescribed limit and remit the funds outside India. (Declaration, as mentioned above, is to the effect that the funds belong to you and that it will not be used for any purpose which is prohibited).
- It is good to remit through the Bank with which you have maintained the bank account for a minimum period of one year prior to the remittance or the process of remittance will be increased to the extent that the Bank will carry out more stringent due diligence on the operations and maintenance of the account maintained by you.
- The banker will comply the "Know Your Customer" guidelines and shall ensure that the Anti-Money Laundering Rules in force have been complied with, while allowing the transactions.
- An investment can be made to the upper limit of USD 250,000 during a financial year of April to March.
- Further, you can retain, reinvest the income earned on the investments.
- This limit of USD 250,000 is subject to change by RBI.
So, if you are planning to make an investment outside India don’t hesitate. Now is the best time. Avail this facility given by RBI to resident individuals to invest outside India.
Go Global, grow faster and diversify your risks.
The Sanskrit phrase “Vasudhaiva Kutumbakam” means "the world is one family".