Anand Vaid is part of a new breed of foreign investors. Not the ones who have pumped in billions of dollars into the Indian markets. The foreign tag comes because the Mumbai-based entrepreneur is among the first and few Indians who have invested in global stockmarkets.

ANAND VAID BUSINESSMAN

"I now want to buy shares of Microsoft and other Fortune 500 companies."

Mumbai-based Vaid invested Rs 3 lakh in Principal's Global Opportunity Fund. He has also invested in overseas equity markets in the name of his family members after the RBI allowed investments.

Vaid is one of the bravehearts who are capitalising on the RBI's recent move that allowed Indians to invest up to $25,000 (Rs 11 lakh) a year in property, shares or other assets outside the country. The RBI's permission-a big step towards taking the benefits of rupee convertibility to the common man-resulted in banks and mutual funds rushing in to woo customers with a slew of products and schemes. Within six weeks, banks had raised $10 million (Rs 45 crore) from investors ready to invest their money abroad. Such was the rush that the RBI had to ask banks to seek its approval before soliciting business from customers. Says RBI Chief General Manager Alpana Killawala: "In case of banks offering investment schemes, the RBI wants them to tell depositors exactly where their money is being put and explain the risks. The foreign investment schemes are regulated by authorities in that country."

The caveats apart, there are several options for Indians wishing to invest in global markets (see box). They can now open savings accounts, current accounts or even fixed deposits in a bank in any country. So one could hold a US dollar, euro or an Australian dollar bank account and not only earn an interest on it but also gain if the currency appreciates against the rupee. Interest rates in most developed countries are lower than those offered in India. For instance, in the US the prevailing interest rate is 2 per cent and in UK it is around 5 per cent compared with 6-8 per cent in India. Besides, the currency in which deposit is held can also lose value against the rupee. That will further reduce the returns.

VIJAY BHATIA SR VP, CENTRUM DIRECT

"Going by the current market trend, my foreign investment has done very well."

The Mumbai-based technocrat invested in a mutual fund that invests in foreign equities in March. While NAVs of domestic funds declined, Bhatia's foreign investments rose in the past two months.

Investors can also buy shares of foreign companies in overseas markets. To trade in stockmarkets directly, an investor needs to open a foreign currency account and a DEMAT trading account with an overseas broking outfit.

Those who don't want to buy shares directly can take the mutual funds route. One option is the Global Opportunities Fund from Principal which invests in global equities. Since it was launched in March, the fund has garnered more than 9,000 investors and commands a corpus of over Rs 70 crore. Says Sanjay Sachdev, country manager of Principal International: "Various countries impose regulations on who can invest in their stockmarkets (like in the case of the Google IPO which isn't open for direct subscription from India) so going through a mutual fund makes sense."

Two months and one Black Monday later, the diversification into foreign markets indeed sounds sensible. While the NAV of the Global Opportunities Fund has risen by about 5 per cent, the average Indian diversified equity fund has fallen by over 12 per cent in the past two months. This has increased the appetite for global investment in India. Says Vaid: "I now want to buy shares of Microsoft and other Fortune 500 companies by opening a forex account."

Encouraged by the response, many Indian mutual funds are planning to launch schemes that would invest in foreign markets. UTI Mutual Fund has already tied up with State Street, the world's largest institutional asset management company, to launch its global products. However, before these schemes reach the investor several regulatory issues have to be sorted out. While the RBI has allowed residents to buy shares of any foreign company, mutual funds are still governed by a SEBI guideline under which funds can invest only in equities of those companies that have a listed subsidiary in India.

The Association of Mutual Funds of India has urged SEBI to allow mutual funds the same freedom granted to individuals. Most foreign banks and mutual funds are awaiting guidelines from SEBI to introduce their international schemes in India.

A host of structured products for investors will also find their way to India soon. One such product is the real estate investment trusts (REITs), essentially mutual funds that invest in property. Just as mutual fund schemes distribute income from shares and bonds among unitholders, these REITs distribute rental income from the property. These too await SEBI's nod.

Whatever may be the investment chosen, one thumb rule must be kept in mind when putting savings abroad: investments in foreign markets not only carry the usual market risk but also an exchange-rate risk. Greater choice of savings comes with the need to better understand the global markets and to quickly respond to changes happening in the markets hours behind or ahead of India time (see table).

Taxation is another issue to keep in mind. Tax on income from global investments will depend on the tax paid in the destination country. If the tax paid is lower than the Indian rate, the investor will have to pay the difference. But if the tax paid is higher than the Indian rate, he gets a tax credit for the excess tax paid. Income from rupee-denominated global mutual funds will get the same tax treatment as income from a domestic mutual fund.

On its part, the RBI has opened the world for investors. Making most of this opportunity will depend on an individual's knowledge. And luck.