How to Invest in US Stocks from India?

Are you an investor looking to invest in the stocks of the US stock market? Do you find them more profitable? Or are you trying to diversify your portfolio? Whatever the reason might be, the popular trends indicate that US stocks are some of the stocks that have proved to be profitable for Indian investors. The US economy is one of the world’s largest and fastest-growing ones. it follows that it has the world’s largest stock market. There are many popular stocks such as Apple, Facebook, google etc here. Buying stocks from these firms will help you diversify from Indian stocks as well as earn more. But there is a question that we might want to answer before getting into this. How to Invest in US Stocks from India? We think investing in another nation’s stocks will involve elaborate and tedious procedures. But this statement presented as fact is not true.

Investing in US stock is easier than ever due to advancements we achieved in technology as well as globalisation. This will give you a wider range of investing for all Indian investors looking to diversify and grow. But this does not answer the question ‘How to Invest in US stocks from India?’. This investing could be done directly or indirectly. What does direct and indirect investment in this scenario mean? In this article, we answer all the possible questions you have on the subject. We will learn more about various options in investment, charges that need to be paid for investing and risks you must be aware of. So, let’s get into this and understand more about the question ‘How to Invest in US stocks from India?’ I will try to answer all the questions and alleviate all the doubts you may have in your mind about this subject.

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Why Should We Invest in US Stocks from India?

There are many reasons for why a person should invest in US stocks from India. Some of them are listed below.

• The indices of the US stock market have historically been less volatile than those of the Indian stock market.
• A vast array of investment opportunities is available to investors in the US stock market, which is among the biggest and most liquid markets globally.
• Large international companies that are listed on US stock exchanges provide greater portfolio variety.
• When looking only at dollars, the US market has done better than the Indian market during the past ten years. Even in cases where an investor’s portfolio stays static, they can still profit from a gain in dollar value.
• You can invest in a potential firm in its early phases because the US is at the forefront of global innovation and business.
• An investor’s chances of stability and growth are increased because the US economy is the biggest and most diverse in the world.
• The United States possesses a robust legal and regulatory structure that safeguards the interests of investors and guarantees an equitable and transparent market.

Type of US Stocks

There are numerous varieties of US stocks, and each has advantages and disadvantages of its own. Common stock is the most popular kind of stock, entitling owners to a portion of the company’s profits and assets. Other stock categories include debt securities, which are effectively loans that need to be returned with interest, and preferred stock, which grants shareholders priority over regular stockholders in the case of a liquidation. t is crucial to understand the various stock kinds and select the ones that best meet your financial objectives when buying US equities from India.

Questions to ask yourself before you Invest in US Stocks from India

You should ask yourself a few questions before starting to Invest in US Stocks from India. Some of them are:

• What financial objectives do you have? Do you want to make an instant profit on your investment or are you looking to expand your portfolio over time?
• What level of risk are you willing to take? Are you seeking a more reliable investment, or are you willing to accept greater risk in exchange for perhaps better returns?
• Which time horizon do you have? Do you intend to invest for the long term or the short term?
• What is the size of your budget? What is the amount of money you are willing to put into US stocks?

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How to Invest in US Stocks from India?

People want to invest in US stock from India due to many benefits such as diversification, liquidity, flexibility and a high level of transparency. The exchange rate of the US dollar is also another reason. There are two ways to invest in US stocks from India. They are:

• Direct investment
• Indirect investment

But this part of our knowledge will remain incomplete without knowing the specifications and distinctions between these two divisions. Let’s dive into it and learn more about methods of direct investment and indirect investment.

Direct Investment

What does a direct investment mean? Direct investment refers to the act of purchasing the stock listed on the US stock exchange in this scenario. There are a few ways in which this can be done. Do you know about any of them? Two ways of executing direct investment are given below.

Opening an Overseas Account with an Indian/ Domestic Broker

Many domestic brokers have connections in the US stock market. They will act as intermediaries and execute the needed trade for you. You can open an overseas account with any such broker and start to Invest in US stocks from India. But there might be some paperwork involved. Indian investors can register an account with a domestic broker such as Kotak Securities, ICICI Direct, or HDFC Securities to trade internationally. Investing in US equities is similar to investing in Indian stocks. To achieve this, investors need to open an international trading account with a domestic broker. Investors can purchase and sell US equities using the domestic broker’s trading platform. The procedure is the same as buying Indian stocks.

However, it is important to know that this facility comes with certain restrictions. These restrictions are entirely dependent upon the brokerage firm you are engaging with. These restrictions might include restrictions on specific investment vehicles, the number of investments you can make etc. In this case cost of investing might be higher as well as the broker fees. Currency conversion is also a major part of this. So, you must understand all the charges involved before getting into this type of investing.

As you are aware, due to the conversion rates, when a few stocks are converted to Indian rupees, their price escalates to the point where many investors are unable to purchase even one share. To avoid this dilemma, one can purchase a fractional part of the US market. A fractional share is a portion of an entire stock that can be exchanged similarly to an entire stock.

Opening an Overseas Account with a Foreign Broker

Another option that comes under direct investment is to open an overseas account directly with a foreign broker who has a significant presence among brokerage firms working in India. Indian investors can open trading accounts and make investments in US stocks through foreign brokers such as TD Ameritrade, Interactive Brokers, and Charles Schwab. Compared to creating an account with a domestic broker, opening an overseas trading account with a foreign broker could require more documentation and verification.

On the other hand, overseas brokers provide access to a greater selection of US stocks, more extensive trading platforms as well as research tools. Always make sure that you understand the costs like fees and other charges involved before venturing into this method. So, conduct your research quite thoroughly before settling with a brokerage firm.

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Indirect Investment

Just like in the domestic market, you can take indirect positions in the US stock market also without investing directly. You can think about indirect investment options like mutual funds, exchange-traded funds (ETFs), and mobile apps if direct investing isn’t your thing due to your investment goals or risk tolerance. But what are the ways of indirect investment in the US stock market? Three of them are listed below.

Mutual Funds

In the case of Mutual funds, you don’t have to open an overseas trading account or maintain a minimum balance that some brokerage firms might require you to as in the case of direct investments.

Investment vehicles known as mutual funds combine the capital of multiple participants to buy stocks, bonds, and other securities. Upon investing in a mutual fund, you turn into a shareholder and entrust your capital to the expertise of a qualified fund manager. Mutual funds can invest in US companies, and Indian investors have access to several mutual fund options that concentrate on the US market.

You can begin investing in US stocks through mutual funds by creating an account with a fund company that makes investments in the US stock market. Mutual fund categories that you can select from include large-cap, mid-cap, small-cap, and industry-specific funds. You can choose the best mutual fund for your portfolio based on your investing objectives, risk tolerance, and time horizon.

Exchange-traded funds (ETFs)

You can gain sufficient exposure to the US stock market using Exchange-traded funds (ETFs). There are direct as well as indirect methods available in this method. There are two ways to do this. you can buy US ETFs via an Indian or foreign broker directly. Or you could just buy an Indian ETF of international indices.

Mutual funds and exchange-traded funds (ETFs) are financial vehicles that pool the capital of multiple participants to buy stocks, bonds, and other securities. ETFs are exchanged on stock exchanges much like individual equities, in contrast to mutual funds. ETFs can invest in US stocks as well, and Indian investors have access to several ETF options with a US market focus.

The first step in using ETFs to invest in US stocks is to open a trading and demat account with a stockbroker that provides access to US stock exchanges. After opening the account, you can look for US-based ETFs that suit your risk tolerance and investing objectives. ETFs are just like individual stocks in that they may be bought and sold, and unlike mutual funds, they typically have lower transaction costs.

Online Applications

Nowadays mobile technology has evolved so much that there a numerous apps that can be used by Indian investors to purchase US stocks. However, some of these apps prevent Indian traders from making intraday trading in the US market due to regulatory restrictions.  Indian investors can purchase US stocks and ETFs through several mobile apps. These apps offer a practical and easy-to-use platform for managing your portfolio and making investments in US stocks. Indian investors can use several well-known apps, such as Vested, Stockal, and Webull.

The first step in using a mobile app to invest in US equities is to download the app of your choosing and finish the registration procedure. You will have to finish the KYC (know your customer) process and provide your financial and personal information. You can fund your account and begin investing in US equities and ETFs as soon as the registration process is complete.

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Charges to Invest in US Stocks from India

When investigating how to invest in US equities, it is critical to understand the fees and taxes associated, as well as the maximum amount that may be invested. It is imperative to consider the geopolitical and economic issues, such as inflation, interest rates, and political developments, that may impact the performance of the US stock market. Investing in US equities may have different tax consequences depending on several factors, such as the investment type, length of holding, and country of origin.

One should keep in mind that investing in US stocks is not a cheap thing. There are several charges involved in this. some of them are mentioned below.

Tax Collected at Source (TCS)

Under the RBI’s Liberalized Remittance Scheme (LRS), all remittances over Rs 7 lakh are subject to a 5% TCS (Tax Collected at Source) tax. This only applies to the portion over Rs 7 lakh, not the entire amount. When the taxpayer submits an income tax return, they can claim the TCS as a refund.

Bank Charges and Foreign Exchange Rate

Transfer fees and foreign exchange conversion costs are usually charged by banks. Additionally, there can be an initial setup fee for the account. The foreign exchange rate at the period of purchase or withdrawal might affect both the cost and the amount of units issued.

Capital Gains and Dividend Tax

Indian citizens are subject to a 25% dividend tax rate in the US. The investor might avoid paying tax on the same revenue twice by claiming credit for taxes paid overseas thanks to the Double Tax Avoidance Agreement (DTAA). Your US investments are not subject to capital gains tax. However, in India, you have to pay taxes on your capital gains.

Brokerage Fee

You are required to pay a suitable amount to the brokerage firm you are employing. This is the fee for their services.

Investing in tax-efficient investments like ETFs, selecting a broker with low fees, and making long-term investments are some tactics you may want to think about if you want to minimize the costs and taxes associated with investing in US equities.

How Much Can A Person Invest in US Stocks from India?

Remember that using mutual funds would come with certain regulatory obstacles. The Reserve Bank of India has mandated that investments in foreign markets by all Indian mutual funds registered with the Securities and Exchange Board of India (SEBI) may not exceed $7 billion, and investments in foreign exchange-traded funds (ETFs) may not exceed $1 billion. Fresh investments in foreign equities have been halted as these firms’ total foreign stock holdings had nearly crossed $7 billion as of January 2022.

It’s also important to remember the instructions that the RBI announced regarding the Liberalized Remittance Scheme (LRS), which allows Indian residents to invest up to $250,000 annually without requiring any additional authorization.

Recent News

Indian retail investors can trade certain US stocks through the NSE IFSC (NSE International Financial Services Center). It is an entirely owned subsidiary of the NSE, the National Stock Exchange. The Gujarat International Finance Tech City, also known as the GIFT City, is home to the international exchange. Investors will currently be able to trade in fifty US stocks. These stocks will be traded by investors as Unsponsored Depository Receipts.

Additionally, it allows investors to trade in fractional amounts and still be eligible for corporate action benefits related to the underlying stocks. The stocks or depository receipts purchased will be deposited into the demat account after three days, and the proceeds from the sale of the stocks will also be credited, according to the T + three-day settlement cycle.

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Things to Consider Before We Decide to Invest in US Stocks from India?

There are a few things that one should keep in mind before deciding to Invest in US Stocks from India. Some of them are listed below.

• If you have the time and experience to thoroughly examine the US market and economy and come to a well-informed decision, open an overseas trading account.
• Compared to domestic assets, investing abroad carries a higher cost. Pay attention to account fees, brokerage fees, currency conversion fees, and other expenses. As a result, make sure you understand all charges completely.
• In the US market, investing is more economical than trading. This is because excessive fees have the potential to reduce traders’ typical marginal returns. It is also possible to obtain respectable post-charge profits through long-term investing.
• Take into account the relevant taxes under the tax legislation of the US and India.
• Compared to trading, long-term investing is more economical. The computation of Long-Term Capital Gain is based on an investment period exceeding twenty-four months.
• It’s important to choose the best platform when investing in the US market out of the many possibilities available.
• Begin modestly and expand your exposure as confidence grows.

Risks Involving Invest in US Stocks from India

Many risks are involved if you decide to invest in US stocks from India. Some of them are listed below.

• The possibility of exchange rate volatility exists. Your investment will be worthless in rupees if the value of the Indian rupee declines about the US dollar.
• You run the risk of the US stock market as a whole declining or the firm you invest in not performing as well as you had anticipated.

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This article’s overall goal is to teach you how to invest in US equities from India, which can be a profitable prospect for individuals who are prepared to do their homework, weigh the risks, and plan to hold onto their money over the long run. You might be able to increase your wealth and reach your financial objectives with the appropriate strategy. To trade in forex without having a second guess educate yourself with the forex basics.