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BDRs vs. investing abroad: which is better?

Learn the pros and cons of BDRs versus investing abroad.  

It ‘s not easy to choose between BDRs or investing in US stocks directly. BDRs make it possible for those who aren’t qualified investors (with more than BRL 1 million invested) to invest money abroad or to open an account in another country.

However, direct investment in stocks can bring greater liquidity and autonomy. Plus you are not limited to companies that issue stock certificates, so you may invest in any publicly traded company.

The fact is that both have their pros and cons – besides, there are differences in terms of application, taxes, etc. Find out below the differences between these applications, and determine the best choice investment according to your investment objectives: BDRs or foreign investment. 

What’s the difference between BDR and foreign investment? 

The main difference between these securities is that when you buy shares, you are investing directly in international listed companies. On the other hand, when you invest in BDRs, you are buying bonds that represent shares, not the shares themselves. To understand better, check out the main characteristics of these investments: 

BDR

The Brazilian Depositary Receipt (BDR) or Certificado de Depósito de Valores Mobiliários (CDVM), is an asset that refers to shares issued by national and foreign companies and that are traded on the Brazilian stock exchange.

Before the emergence of BDRs, only qualified investors with a foreign account were able to invest in foreign companies. 

Pros of BDRs:

  • Convenience for investing abroad: you don’t need to open an international account in order to invest in these assets. You carry out transactions directly from Brazil, but with the intermediation of a broker. 
  • Investments in Real (BRL): through this system, the transactions are in real (BRL), which eliminates exchange needs.
  • Rights to dividends from companies abroad: in the BDR system, your economic rights are equal to those of a shareholder. This means that you will receive dividends from that company in the same way that you would if you had invested directly in stocks. In this case, taxation will be in accordance with the rules of the country from where the shares originate.

Conversely, the cons of BDRs are:

  • Investments with volatility risk: these certificates are associated with company shares. Therefore, like other variable income assets, they are subject to the volatility of this market.
  • Exchange: although the purchase of BDRs takes place in real, these assets are related to shares quoted in dollars. Thus, the investor is exposed to exchange risk, due to the appreciation and devaluation of the dollar.
  • Indirect investment: Unlike what happens when the investment is made directly in the US, BDRs are only available through certificates. This means that the investor is limited to the certificates available on B3.

Ok, but what is a stock? 

Basically, stocks represent a fractions of a company’s equity capital. This means that when you buy a share, you become a partner in a company. The concept of stocks is approached in-depth in another article on our blog. 

And how do I invest in stocks or BDRs?

If you are interested in shares to make foreign investments, the steps are the following:

  • Look for a broker in the country of interest that offers assistance to invest abroad.
  • Check what taxes are charged to invest in this country. 
  • Check what conditions the broker offers, fees, portfolio options, etc.
  • Finally, send the documents requested by the broker for approval.
  • Once with an active account, you deposit money into it to start looking for investments that may be right for you

To buy BDRs you must: 

  • Look for a broker to trade the BDRs on the Brazilian stock exchange. Therefore, check the conditions and fees charged. 
  • After choosing, send your documents and wait for approval. 
  • With an open account at the brokerage, initiate a money transfer (via TED or DOC) to start trading. 

Which one is the best choice for you?

BDRs and stocks both have their pros and cons. You should determine which is best for your risk tolerance and objectives.  

With Passfolio Securities, for example, you can invest in American stocks with no commission fees* on your phone today! Any Brazilian can easily invest abroad.s.

You can use your local currency and deposit methods to invest in dollars, shares, ETFs and REITs, in a straightforward  and 100% digital way. Learn more here

*Securities less than $5 cost $0.02/share. Please see our disclosures on other charges.