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How to Invest in US Stocks from India
Diversify your portfolio by investing in US stocks. Read on to know how to invest in US stocks from India and reasons why you should consider investing in foreign stocks.
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How to Invest in US Stocks from India
17 November 2022 6 min read
The US stock market is home to some of the best stocks in the world like Facebook, Google, Apple, General Motors, etc. Buying such Stocks allows you to participate in their growth story while allowing you to diversify beyond the Indian stock market.
There are different Indian platforms that allow you to invest in US Stocks from India as there are no US Stock brokers in India.
How to Invest in the US stock market from India?
If you’re wondering, Can I Invest in the US Stock Market or how to invest in US stocks from India, the answer is, yes you easily can!
There are two distinct ways of investing in the US stock market from India:
Direct investment in stocks.
Indirect investment in stocks via mutual funds or ETFs.
How to directly how to invest in foreign stocks from India? You can invest in the US stock market directly by opening an overseas trading account with a domestic or foreign broker. Be mindful of the charges before you pick the best app to invest in US stocks from India.
Opening an Overseas Trading Account with a Domestic Broker
Many domestic brokers have tie-ups with stockbrokers in the US. They act as intermediaries and execute your trades. You can open an overseas trading account with any such broker. You might have to submit a set of documents to open this account.
However, it is important to remember that this facility has some restrictions. Based on the brokerage firm, you might have some restrictions on certain investment vehicles or the number of trades that you can make, etc.
The cost of investing can be high considering brokerage and currency conversion charges. Hence, ensure that you know all the costs before opening an account.
Opening an Overseas Trading Account with a Foreign Broker
You can also open an overseas trading account directly with a foreign broker with a presence in India. Some such brokerages are Charles Schwab, Ameritrade, Interactive Brokers, etc. Ensure that you understand the fees and charges before opening the account.
So, conduct your research properly before you pick the best broker to invest in US stocks from India.
Like domestic investments, you can take an indirect position in US stocks without investing in them directly. Here are two options to consider:
You don’t need to open an overseas trading account or maintain a minimum deposit that can be the case with some stockbrokers offering direct international investments.
There are many Mutual Funds that invest in US Stocks and/or Mutual Funds.
You may also want to read: How to Invest in US Stocks via Mutual Funds?
Exchange-Traded Funds (ETFs)
You can also gain exposure to US stocks by investing in ETFs. There are direct and indirect routes available for ETFs. You can purchase US ETFs directly via a domestic or international broker or purchase an Indian ETF of international indices.
Investing via New-Age Apps
Since the evolution of mobile apps for different types of services, there have been several apps launched by start-ups to help Indian investors invest in the US stock market. intraday trading in the US market from India may not be allowed in some of these apps due to regulatory requirements.
How Much Can I Invest in US stocks?
The Reserve Bank of India (RBI) released guidelines under the Liberalized Revenue Scheme (LRS) that permitted an Indian Resident to invest up to 250000 dollars (around 1.9 crore rupees) per year without any special permissions.
Now that we know how to invest in the US market from India, let’s look at some reasons why you should consider investing in stocks in the US and the charges involved.
What are the Different Charges Involved While Investing in US Stocks?
Tax Collected at Source
A 5% TCS (Tax Collected at Source) is levied on all remittances above Rs 7 lakh under the RBI’s Liberalized Remittance Scheme (LRS). This is applicable to the amount above Rs 7 lakh and not the total amount.
The TCS can be claimed as a refund when the taxpayer files an Income Tax Return.
Capital Gains & Dividend Tax
In the US, dividends are taxed at a rate of 25% for Indian citizens. Owing to the Double Tax Avoidance Agreement (DTAA), the investor can claim credit for taxes paid abroad so that he/she doesn’t have to pay tax on the same income twice.
There is no capital gains tax on your investments in the US. But you are liable to pay tax on the capital gains in India.
To know more about how capital gains are taxed in India, click here: Capital Gains Tax
Most banks charge foreign exchange conversion fees and transfer fees. There may also be a one-time account setup charge.
How to invest in US stocks from India?
People want chance to invest in companies listed in America like Apple & Google or one with similar trajectory. To know how to invest in US stocks from India, read now.
HOW TO INVEST IN US STOCKS FROM INDIA?
02 Sep 2022 0 COMMENT 5 LIKES Share
One certainly must have heard about the companies listed in America and thought about investing in them to be a part of their growth story. Looking at how Apple, Google, Microsoft, Amazon, and multiple other companies have turned out to be multi-baggers makes people want to take chances on companies which may follow a similar trajectory in the future. Some Indian citizens also look out to diversify their portfolios internationally, and in this article, we will talk about how to invest in US stocks from India.
There exist two different ways for an Indian citizen to invest in the US markets, one is through direct investments in the form of stocks and the other is through indirect investments like mutual funds and ETFs. Let’s take a detailed look at these two methods.
Direct investments in the US markets
Under the category of direct investments, one can open an overseas trading account with a domestic broker which has a tie-up with stockbrokers in the US, or an overseas trading account with a foreign broker which has a presence in India. In the former, the domestic brokers have tie-ups with brokers in the US and act as intermediaries in executing one’s trades. One should keep in mind that on the basis of brokerage firms, one may face restrictions when it comes to the number of trades which can be made or restrictions in investing in certain investment vehicles.
As you know, the price of a few stocks becomes too much if you convert them in Indian rupee and many investors can’t afford even one share. To avoid this problem, one can also buy a fractional share in the US market. A fractional share is a slice of a whole stock and can be traded like a full stock.
Indirect investments in the US markets
Firstly, let’s understand about the mutual fund route. There exist two kinds of mutual funds who make investments in overseas markets. One being fund of funds, which are local mutual funds which make investments in international mutual funds, and the other being local mutual funds which make investments in international stocks. The expense ratio of mutual funds that invest in international funds also tends to be higher. For fund of funds, apart from the management fee for the Indian fund, there is also a management fee for the underlying international fund.
Let’s now come to ETFs. ETFs, which stand for Exchange Traded Funds, are similar to mutual funds, as they essentially are a collection of multiple stocks which are traded under one fund, but unlike a mutual fund, ETFs are traded on exchanges with real-time pricing, similar to how stocks are traded. ETFs can also let one get some exposure on certain sectors by investing in an ETF which tracks a particular sector, like healthcare or energy.
One should keep in mind that there would be some regulatory hurdles through a mutual fund route. According to the mandate given by the Reserve Bank of India, all Indian mutual funds registered with the Securities and Exchange Board of India (SEBI) are permitted to invest in international markets up to a limit of $7 billion, and investments in international ETFs have a limit of $1 billion. In Jan, 2022, the investments made internationally by these entities has almost reached the $7 billion mark, so any fresh investments in international stocks have been paused.
One also needs to keep in mind the guidelines released by the RBI under the Liberalised Remittance Scheme (LRS) which permits an Indian resident to invest up to $250,000 per year without any special permissions.
Tax and charges on investment in US stocks
Let us now talk about the different kinds of charges which one will encounter while investing in US stocks.
Starting with Tax Collected at Source, or TCS, a 5% TCS is levied on the aggregate remittances above Rs. 7 lakhs in a year under the Liberalised Remittance Scheme about which we talked a while before.
Then there is brokerage fee which is charged on the buying and selling of shares, bank charges which include foreign currency conversion fees, transfer fees and maybe even a one time account set-up charge. The foreign exchange rate at the time of purchase or withdrawal may also impact costs.
Other than these, there also exist capital gains and dividend tax. In the US, dividends are taxed at a rate of 25% for Indian citizens. Also, due to the Double Tax Avoidance Agreement (DTAA), investors get to claim credit for taxes paid abroad so that they don’t have to pay taxes on the same income twice. There exists no capital gains tax in the US, but one is liable to pay taxes on the capital gains in India. If you hold the stocks for more than 2 years, it will be qualified for long term capital gains and taxed at 20% with indexation. If it is sold before two years, it will be treated as short term capital gain and will be added to the individual’s income and taxed as per the slab. The exemption of Rs. 1 lakh per year available for long term capital gain on stocks is not applicable for foreign stocks.
Let’s now come to a recent and a rather interesting occurrence pertaining to international investments. Indian retail investors can now trade select US stocks through NSE IFSC, which stands for NSE International Financial Services Centre. It is a wholly-owned subsidiary of the National Stock Exchange, NSE. The international exchange operates in the Gujarat International Finance Tech City, or the GIFT city. Presently, investors will be able to trade in 50 US stocks. Investors will be able to trade these stocks in the form of Unsponsored Depository Receipts.
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US Stocks Explained
US stocks are bought and sold on major exchanges in the US such as the NASDAQ and the New York Stock Exchange (NYSE) just like the BSE and NSE in India. Within these exchanges, you have indices that measure the stock market’s performance.
The connector service for US Stocks a/c is provided by Finzoomers Services Private Limited. Please be informed that US Stocks are not exchange traded funds and Finzoomers Services Private Limited acts in the capacity of facilitator of this product. All disputes with respect to the transaction facilitation services, would not have access to Exchange investor redressal forum or Arbitration mechanism.
The three major indices for US stocks are the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite, like the SENSEX and NIFTY in India. Dow tracks the 30 large, blue-chip companies listed on US exchanges, the S&P 500 includes 500 large companies from different sectors, and the NASDAQ Composite represents the value of stocks listed on NASDAQ.
Types of US Stocks
US stocks can be categorized into four types based on their market capitalization or market cap. Each of these categories has a threshold based on market cap. As the market cap is calculated using stock price, these thresholds change based on changing stock prices:
Mega cap stocks represent the largest companies in terms of market cap. Usually, mega-cap companies have a market cap of above $200 billion.
Large-cap stocks have a market cap of above $10 billion. Large-cap stocks, or big caps, are established companies with stable revenues and profits. Large-cap stocks are usually very liquid. Due to their size and stability, large-cap stocks are suited for risk-averse investors.
Midcap companies have market caps in the range of $2 billion and $10 billion. Mid-caps are high-potential companies, expecting growth in revenues and profits. Midcap stocks are riskier than mega-cap and large-cap stocks and are suited for investors with a moderate risk appetite.
Small-cap stocks have a market capitalization of between $300 million and $2 billion. Small-cap stocks offer a high potential for growth but carry greater risk than other categories. Small caps are suited for investors with a high-risk appetite and those who are willing to invest time in researching good quality stocks.
How to Invest in US Stocks from India?
Investing in US stocks from India is now possible for everyone, in one of the two ways given below:
You can buy US stocks and ETFs from India directly through INDmoney. If you find some US stocks expensive, you can take advantage of fractional trading and start your US investment journey for as little as $1. INDmoney makes it easy for you to invest in US stocks by categorizing them as hot, tech, pharma, etc. Within each category, you will find stocks classified based on their market cap.
You can also invest in ETFs to diversify the risk while also earning from US stock market gains. INDmoney enables you to choose from a wide range of ETFs. You can also choose an ETF related to the size of its stocks (i.e., large caps, mid caps, or small caps) based on your risk profile and return expectations.
You can also invest in the US market from India indirectly through mutual funds. There are a variety of funds covering different industries and different asset classes available. Some of the disadvantages of this kind of investment are high expense ratios and sales charges, management abuses, tax inefficiency, and poor trade execution.