The alleged Rs 100-crore trading fraud involving Bengaluru-based fintech platform Stockal Securities has brought the risks of investing in overseas equities through digital platforms in spotlight.
Accoridng to media reports, around 30 Indian investors have alleged that their US stock holdings, which included shares of Apple, Nvidia, Amazon and Tesla, were liquidated without their authorisation, and the proceeds were used to purchase shares of a Chinese company, Zhibao Technology Inc.
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The incident, which remains under investigation, has raised serious questions about account security, trade execution, custody of overseas securities and the recourse available to Indian investors when things go wrong.
Investing in the US stocks offers Indian investors access to global businesses, technology companies and sectors that may have limited representation in domestic markets.
READ | Stockal Fraud Case: HDFC Securities Says It Is Not An Accused, Partnership Ended In 2024
However, buying shares listed overseas also comes with a different set of risks.
Here are the top five risks investors should understand before putting money into US stocks.
1. Platform And Cybersecurity Risks
The investment account is only as secure as the systems and processes protecting it are. Compromised email accounts, Phishing, stolen login credentials and weak authentication mechanisms can leave investors exposed towards unauthorised transactions.
The Stockal case has highlighted why investors should check whether platforms offer multi-factor authentication, real-time alerts, mechanisms and login notifications to raise or restrict suspicious transactions. Most importantly, investors must understand who is responsible for account security and how quickly unauthorised trades can be reported and addressed.
2. Custody And Counterparty Risks
Overseas stock transactions may involve multiple entities unlike domestic equity investments. It includes an Indian-facing investment platform, an overseas broker, a clearing firm and a custodian.
An investor should establish which entity actually holds their securities, whose name the assets are registered under and what happens if the platform or its overseas partner faces financial or operational difficulties. A familiar Indian brand or app does not necessarily mean the underlying securities are held in India or under the same regulatory framework as domestic shares.
3. Currency and Exchange-rate Risk
US stock market returns are not determined by share-price movements alone. The Rupee-Dollar exchange rate also plays a keys role in the final returns earned by an investor back home.
For a better clarity, an investor must understand that an appreciation in the rupee against the dollar can reduce the rupee value of an investment even if the underlying US stock remains unchanged. Conversely, rupee depreciation can boost returns when investments are converted back into Indian currency.
Investors must also account for currency conversion charges and remittance costs. Notably, the US Securities and Exchange Commission (SEC) identifies exchange-rate fluctuations as a key risk associated with international investing.
4. Market Volatility And Liquidity Risks
Investing in well-known US companies does not eliminate market risk. Overseas equities remain exposed to sharp price movements driven by interest rates, corporate earnings, geopolitical developments and economic data.
The risk can be considerably higher in smaller companies and thinly traded stocks, where limited trading volumes can make it difficult to exit positions at the desired price. The Stockal incident, where investors alleged that proceeds from unauthorised sales were used to purchase shares of a relatively obscure Chinese company, illustrates the potential consequences of exposure to illiquid securities.
5. Regulatory And Tax Compliance Risks
Overseas investments made by Indian residents fall under the Reserve Bank of India's Liberalised Remittance Scheme (LRS). The RBI currently allows resident individuals to remit up to $250,000 per financial year for permitted transactions, including overseas investments.
Investors must also understand their Indian tax obligations. Resident taxpayers are required to disclose applicable foreign assets and income in Schedule FA of their income tax returns. The Income Tax Department specifies disclosure requirements for foreign equity interests, depository accounts and custodian accounts.
What Investors Should Check
Before opening an overseas trading account, investors should verify the platform's regulatory credentials, identify the overseas broker and custodian, understand the applicable investor-protection framework and check the process for reporting unauthorised transactions.
For instance, US Securities Investor Protection Corporation (SIPC) protection applies only to eligible assets held with member brokerage firms, covers certain losses arising from broker failure and does not protect against market losses.
READ | Rs 100-Cr Hit: Indian Investors Allege Unauthorised Apple-Nvidia Swap For Chinese Stock On Stockal
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