The US market remains the top choice for Indian investors when exploring international investment opportunities. The stock exchanges in the USA are the home of some of the largest corporations and global technology giants like Apple, Google, Microsoft, etc. Investing in the US market allows Indian investors to diversify portfolios beyond Indian stocks and amplify profit. If your question is: ‘how to invest in US stocks from India’ then read on.
US stocks are one of the newest asset classes that are gaining popularity among young investors. And since it is a new form of investing, it makes sense to know everything about investing in the US stock market, including the different ways you can get exposure to it.
How Indian investors can invest in the US stock market
An increasing number of Indian investors seek portfolio diversification through economies and geographies. Indian investors prefer to invest in US stocks for their diversification, flexibility, liquidity, and high transparency. The exchange rate of the US dollar is the other reason.
There are two ways Indian investors can invest in US stocks.
- Direct investment in stocks
- Indirect investment via mutual funds and Exchange Traded Funds (ETFs)
As the name suggests, direct investment involves buying and selling US company stocks. Nowadays, investors can invest in fractional shares, which means buying a fraction of one share for investing. The fractional investment allows you to purchase companies like Apple, Google, and Microsoft shares without investing huge money.
To begin investing in the international market, you will need an overseas trading account with a domestic or a foreign broker.
Overseas trading account with a domestic broker
Many Indian brokers have tie-ups with US brokers to offer international investment services. They function as intermediaries, executing buying and selling orders on behalf of the investor. You will need a list of KYC documents to open an overseas trading account.
However, investing through these brokers may have some restrictions. Depending on the broker, there can be constraints on certain investment vehicles or the number of trades you can make. Also, you will have to consider the charges involved.
Opening a trading account with a foreign broker
Nowadays, Indian investors can open a trading account directly with a foreign broker with a presence in India. Conduct your research on charges and services before choosing a broker to invest in the US market.
Those who don’t want to invest directly in the US market can do it indirectly by investing in mutual funds and ETFs with exposure to foreign stocks.
Investing through mutual funds means you don’t need to open an overseas trading account. It helps lower the cost of investment as well.
The other alternative available is ETFs. Investors can directly buy US ETFs on the US stock exchange or an Indian ETF of international indices.
Foreign market investment limitation
However, investing in the US market has an upper limit of USD 250000 per year under the RBI’s Liberalised Revenue Scheme. The limit includes remittances made for education, travel, purchase or any other transaction.
Now that you have learned about US stock investment let’s look at some reasons to invest in the US market.
Reasons to invest in the US stocks
- The US market is one of the largest, liquid, and most mature. As a result, it is less volatile than the Indian market.
- Large global corporations listed on the US stock exchanges offer more diversity to your portfolio.
- In the last decade, the US market has outperformed the Indian market in pure dollar terms. Investors can benefit from dollar value appreciation even when their portfolio remains unchanged.
- The US is the global hotbed for businesses and innovation, allowing you to invest in a promising company early.
Things to consider before investing in US stocks
- Open an overseas account if you have the expertise. Alternatively, you can also invest via mutual funds and ETFs.
- International investment is more cost-intensive than investing in the Indian market. It involves various charges – account opening fees, brokerage charges, transaction and currency conversion charges.
- The exchange rate of the US dollar concerning the Indian currency can impact your earnings from investments.
- Investors should know about the tax implications of investing in the US market. India and the US have signed the Double Taxation Avoidance Agreement (DTAA), which prevents capital gains from getting taxed twice.
Read More: Tax Implications on US stocks
- Investing long-term is more cost-effective than trading. Long Term Capital Gain is calculated on an investment period of more than twenty-four months.
- According to the reformed taxation rules, all foreign remittances above the limit of Rs 7 lakh will attract a 5% tax deducted at the source.
- With various options available, selecting the right platform to invest in the US market is critical.
- Start small and increase your exposure as you gain confidence.
With the help of the information on how to invest in US stocks, you can consider foreign stocks as an investment element for your portfolio. However, investing in the international market has several pros and cons. Hence, ensure you understand all aspects of foreign market investing and decide according to your financial goals.
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Disclaimer: “This blog is exclusively for educational purposes and does not provide any advice/tips on Investment or recommend buying and selling any stock”