Count your brokerage costs abroad

Updated on Oct 21, 2007 10:07 PM IST

Investing in equities abroad is likely to become a common feature with Indian investors as they diversify their portfolios, writes Arnav Pandya.

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Hindustan Times | ByArnav Pandya

Investing in equities abroad is likely to become a common feature with Indian investors as they diversify their portfolios. What will play an important role is that as time goes by one will be able to invest directly in equities abroad using the same kind of facilities that are used for local trading. The road for this is likely to witness increasing action as several trading houses in India tie up with their foreign counterparts to ensure that Indians can trade in stocks on bourses overseas.

This is good news for the new generation of investors who will be able to ensure that they can profit from their knowledge of the happenings around the world and that they can enjoy the returns in India. But before they jump into this new offering, there is one aspect that they will have to deal with. It can cost quite a bit when a person invests in a trade abroad in absolute terms. Hence they should concentrate on the fact that they need to have a large corpus to trade in. Also as compared to the Indian brokerage they might sometimes find that the amount of brokerage that they pay for a transaction abroad is a bit high when they put in a normal transaction.

There are two ways in which the fee would be charged. The first one is a percentage figure like we see here and there is a risk that this amount might be slightly higher than what we pay in India. The second way in which a charge is levied is through payment of a minimum amount. The reason why such a situation will arise is because the conversion cost can be high as far as the investor is concerned. For example a normal charge of $7-9 abroad for putting a trade through when converted into rupees becomes anything between Rs 280-350. Seven or nine dollars might not be high abroad but when compared to the kind of charges that people pay in India, the fee might seem to be on the higher side.

This would mean that the investor would have to trade in a higher amount because if the trade is something like Rs 10,000 then the charge could very well be 2-3 per cent of the value of the trade, which in percentage terms might seem to be on the higher side. If the value of the transaction is high then the average cost of this figure will come down, and due to this reason there has to be a careful strategy of how and when the individual will use the available funds.

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