How do I buy shares of international companies through ETFs?

Investing in international companies has become more accessible to retail investors, thanks to Exchange-Traded Funds (ETFs). These funds allow you to buy shares of global companies without the complexities of direct international stock trading. If you're an Indian investor looking to diversify your portfolio globally, ETFs are an excellent way to invest in international companies. In this blog, we'll explain how you can buy shares of international companies through ETFs.

1. What is an ETF?

An Exchange-Traded Fund (ETF) is an investment fund that holds a collection of assets, such as stocks, bonds, commodities, or real estate. Unlike mutual funds, ETFs trade on stock exchanges just like individual stocks. They offer a way for investors to buy a broad array of international stocks through a single investment vehicle. With ETFs, you can invest in entire sectors, regions, or countries, including those that are outside of India.

• Diversification: ETFs help diversify your investment portfolio by giving you exposure to a wide range of companies or sectors in a single trade.
• Low Costs: Most ETFs have lower expense ratios compared to mutual funds, making them a cost-effective way to invest internationally.
• Liquidity: ETFs can be bought and sold throughout the trading day, providing flexibility for investors.

2. How to Buy Shares of International Companies through ETFs?

To invest in international companies through ETFs, follow these simple steps:

• Step 1: Choose a Broker that Offers International ETFs - In India, many online brokers and stockbrokers allow you to invest in global ETFs. Ensure the broker you choose has access to international markets and offers ETFs that include stocks from the U.S., Europe, Asia, and other regions.
• Step 2: Open a Trading Account - You'll need to open a trading account with a broker that provides access to ETFs. Make sure that the broker offers international ETF options, and check if they charge any additional fees for international trades.
• Step 3: Choose the Right International ETFs - Once your account is set up, you can choose from a wide range of international ETFs. For example, if you want exposure to U.S. stocks, you might consider the S&P 500 ETF or a Nasdaq-100 ETF. If you're interested in emerging markets, you might opt for ETFs focused on China, Brazil, or other developing countries.
• Step 4: Execute the Trade - After selecting the right international ETF, you can place your order through the trading platform. This is the same process as buying domestic stocks. Make sure to review the ETF’s expense ratio, trading volume, and performance before making the purchase.
• Step 5: Monitor Your Investment - After purchasing the ETF, it's important to monitor its performance. While ETFs are generally lower-maintenance compared to individual stocks, you should still track market conditions and economic factors that might affect your ETF.

3. Popular International ETFs for Indian Investors

Here are some of the most popular international ETFs that Indian investors can consider when looking to invest in foreign markets:

• Vanguard S&P 500 ETF (VOO): This ETF tracks the performance of the S&P 500 index, which includes 500 of the largest companies in the U.S. It’s a great way to invest in top U.S. companies.
• Invesco QQQ ETF: This ETF tracks the Nasdaq-100 index, which includes major tech companies like Apple, Amazon, and Google. It's ideal for investors looking for exposure to the tech sector.
• iShares MSCI Emerging Markets ETF (EEM): This ETF offers exposure to stocks in emerging markets, such as China, India, Brazil, and South Africa, making it a great choice for diversifying into growth markets.
• SPDR Dow Jones Industrial Average ETF (DIA): This ETF tracks the performance of 30 major U.S. industrial companies, offering a more conservative investment option in the U.S. market.

4. Tax Implications of Investing in International ETFs

Just like investing in individual international stocks, there are tax implications when you invest in international ETFs. Indian investors need to consider both Indian tax laws and the tax laws of the countries where the ETFs are based.

• Dividend Tax: If the ETF pays dividends, these may be subject to withholding tax by the country of origin (e.g., U.S. withholding tax of 25%). You can claim a tax credit in India for the taxes already paid under the Double Taxation Avoidance Agreement (DTAA).
• Capital Gains Tax: The capital gains tax rate for international ETFs will depend on how long you hold the investment. Short-term capital gains (less than 3 years) are taxed at 15%, and long-term capital gains (more than 3 years) are taxed at 10% in India.

5. Conclusion

Investing in international companies through ETFs is a convenient and cost-effective way to diversify your portfolio. With the right ETFs, Indian investors can gain exposure to major markets around the world and access sectors they may not otherwise be able to invest in. Make sure to choose a reliable broker, select the right ETFs, and stay informed about tax implications.