Investing in the US stock market from India can be a lucrative opportunity for investors looking to diversify their portfolio. The US stock market is home to some of the world’s most successful companies such as Facebook, Google, Apple, General Motors, and many more. However, investing in the US stock market from India can be challenging due to regulatory and logistical hurdles. In this article, we will explore the different ways to invest in the US stock market from India, including direct investment in stocks and indirect investment via mutual funds or ETFs. We will also discuss the pros and cons of each method and provide tips on how to get started.
How to invest in the US stock market from India?
You can invest in the US stock market from India in one of the two following ways:
I. Direct investment
Navigating direct investments involves choosing between a local or foreign broker, each offering distinct advantages and considerations for accessing the US stock market.
- Opening an overseas trading account with a domestic broker:
This involves opening a trading account with a domestic broker in your home country that offers access to international markets, including the U.S. stock market. The broker facilitates the buying and selling of U.S. stocks on your behalf. - Opening an overseas trading account with a foreign broker:
Instead of using a domestic broker, you can directly open an account with a foreign broker that provides access to the U.S. stock market. This may offer more direct access to U.S. exchanges, but it could involve different regulatory considerations and potentially higher fees.
II. Indirect investment
Indirect avenues, such as mutual funds, ETFs, and online apps, provide alternative paths to invest in US stocks, catering to diverse investor preferences and risk profiles.
- Mutual funds:
Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. An investor can buy shares of the mutual fund, and a professional fund manager makes investment decisions on behalf of the fund. Some mutual funds focus specifically on U.S. stocks, providing a diversified exposure to the U.S. market. - Exchange-traded funds (ETFs):
ETFs are investment funds that are traded on stock exchanges, similar to individual stocks. They typically track an index, commodity, bonds, or a basket of assets. U.S. stock ETFs allow investors to gain exposure to the U.S. stock market as a whole or specific sector by buying shares of the ETF. - Online new-age apps:
Online investment apps, often referred to as robo-advisors or stock trading apps, provide a user-friendly platform for individuals to invest in U.S. stocks. Users can buy and sell stocks directly through the app. Some apps also offer automated investment services based on users' risk tolerance and financial goals. Examples include platforms like Robinhood, Webull, and others.
Additional read: How to Invest in Stock Market
What are the different charges involved while investing in US stocks?
You need to pay certain charges when investing in US stocks from India. Here’s a list of the different charges investors must pay when investing in the US stock market from India:
1. TCS
Effective from 1st October 2023, a 20% TCS (Tax Collected at Source) is applicable when funds over Rs. 7 lakh are remitted under the RBI’s Liberalised Remittance Scheme (LRS) for investment in the US stock market. The TCS paid can be claimed as a refund when you file your ITR.
2. Capital gains tax
Investors need to pay a short-term capital gains tax in India for gains attained by selling positions held for less than 24 months. The profits are added to your total income and taxed as per the applicable income tax slab. Moreover, for gains accruing from selling positions held for more than 24 months, you have to pay a 20% long-term capital gains tax.
3. Dividend tax
If you earn dividends on your US stock investments, you will have to pay a 25% dividend tax in the US. However, since India and the US have a Double Taxation Avoidance Agreement (DTAA), you can claim the tax paid in the US as a foreign tax credit to offset your income tax liabilities in India.
4. Bank charges
Most banks also charge a foreign exchange conversion fee (usually up to 2%) and a transfer fee for the overseas transfer of funds. Additionally, you may also have to pay a one-time account set-up fee to the bank.
5. Brokerage fees
Brokerage fee is another charge you have to consider when investing in the US stock market from India. Depending on your stock broker’s policies, you may need to pay a flat fee or a certain percentage of the total traded value.
Apart from these fees and charges, you also need to be mindful of the prevalent foreign exchange rate since the FX rate can impact your purchase and withdrawal costs as well as the total number of allotted units.
Reasons to invest in US stocks from India
Despite fees and charges, investing in the US stock market from India is beneficial for investors for the following reasons:
- Investing in the US stock market allows you to diversify your investment portfolio and mitigate investment risks linked to fluctuations in the domestic market.
- Historically, the US stock market has outperformed the Indian stock market.
- The Indian stock market has historically recorded higher swings than the US market. The relative stability of the US stock market makes it an attractive investment avenue for Indian investors seeking to balance out the intense volatility associated with the Indian market.
- Investing in the US stock market from India allows you to invest in some of the largest and most well-known blue chip companies, such as Amazon, Apple, Tesla, and others.
- The US is also home to some of the most innovative budding enterprises in AI, ML, and other fields. Investing in US stocks from India can help you tap into this growth potential with an early-bird entry.
- The US Dollar has steadily appreciated over the last few years vis-a-vis the Indian Rupee. This trend suggests a strong possibility of higher returns through currency gains.
Pros and cons of the investment approaches
Each of these investment approaches has its own advantages and considerations:
- Direct investments offer more control and potentially lower fees but may require a deeper understanding of international markets and compliance with different regulations.
- Indirect investments through mutual funds and ETFs provide diversification without the need for individual stock selection. They are managed by professionals, making them suitable for those who prefer a hands-off approach.
- Online new-age apps are user-friendly and accessible, making them suitable for beginners. However, investors should be aware of the fees, features, and potential limitations of these platforms.
Before choosing an investment method, it is crucial to consider factors such as investment goals, risk tolerance, knowledge of the market, and preferences for active or passive investment strategies. Additionally, understanding the tax implications and associated costs is essential for making informed investment decisions.
Things to remember before investing in US stocks from India
Indian investors can diversify their investment portfolios with investments in US stocks. However, investing in US stocks from India comes with certain costs and compliance obligations. Therefore, it is crucial to keep the following things in mind when investing in US stocks from India:
1. Currency exchange
Investing in the US stock market involves currency exchange, as transactions are typically denominated in US dollars. Investors should be mindful of currency conversion rates and associated fees, which can impact overall returns. Some platforms offer competitive forex rates, while others may charge additional fees.
2. Tax implications
Understanding the tax implications of investing in US stocks from India is crucial. India has Double Taxation Avoidance Agreements (DTAA) with many countries, including the United States, to prevent double taxation on the same income. Investors should consult with tax professionals to navigate the complexities of international taxation and reporting requirements.
3. Regulatory compliance
Ensure that your chosen investment method complies with both Indian and international regulations. Adhering to regulatory guidelines is essential for a smooth investment experience and to avoid any legal complications.
Conclusion
Investing in the US stock market from India offers exciting opportunities for diversification and potential growth. Whether you opt for direct or indirect investments, carefully consider the pros and cons of each method, stay informed about market trends, and remain vigilant about regulatory and tax considerations. By taking a thoughtful and informed approach, Indian investors can participate in the dynamic and globally influential US stock market.Things to
remember before investing in US stocks from India
