Is investing in the US stock market legal & safe?

Transcript

Hi, this is Viram from Vested. Many Indian investors feel like it’s illegal to invest in the U.S.stock market directly. However, that is not true!

The RBI (Reserve Bank of India) has a scheme called the Liberalised Remittance Scheme or the LRS that allows Indian investors to legally invest in the international markets.

In today’s video – we are going to be talking about what this LRS scheme is and the history behind it.

So, prior to 2004, an Indian resident was actually required to take permission from the RBI everytime they sent money abroad. This was originally done by the RBI to prevent excessive outflow of the rupee which could have destabilized the currency. However, over time as the world got globalised the RBI realized that cross-border flow of capital is essential for economic growth.

And so that’s when in 2004, the RBI introduced the Liberalized Remittance Scheme to simplify the outflow of capital from the country. The Liberalized Remittance Scheme allows Indian residents to freely send money across borders without prior permission from the RBI.

However, what the bank did was it ensured that the funds that somebody can send outside stay capped. So in 2013 the cap for an individual transferring funds abroad was $75,000, in 2014 that increased to a $125,000 and eventually in 2015 the cap stood at $250,000 which it stands at currently as well.

The RBI has appointed banks to ensure that an individual does not cross this $250,000 limit.

Now, under the LRS scheme the RBI has defined certain purposes that are allowed for Indian residents, for example sending money for traveling abroad or for studies internally or even gifting to your friends or family who might be living outside of the country are all allowed. Similarly, investments in the equity or debt market abroad are also allowed under the RBIs Liberalised Remittance Scheme.

However, what is not allowed is using any earnings that you might have from gambling to remit money internationally or you can also not use the money that you have sent abroad for any kind of speculative investments.

Now lastly, let’s look at what kind of volumes this LRS scheme has been seeing. Over the last few years, the amount of money sent abroad has increased exponentially.

The outflow in FY 2020 was $19 Bn, which is 17 times more than what it was in FY 2014. And majority of this outflow is either towards travel, or education, or gifts or towards investment made internationally.

So, that’s it for today’s video and the LRS scheme, keep watching for more.