For Indian investors who wish to diversify their portfolios, buying US equities from India is an attractive proposition. Imagine investing in some of the world-beating US firms such as Apple, Amazon, and Tesla. Furthermore, investments in US stocks provides Indian investors a hedge against fluctuations in the domestic market. Thankfully, trading in US stocks is not difficult as many stock brokers provide the service to their customers. If you are thinking about how to invest in US stocks from India, it would help to have a basic knowledge about the rules governing the process, costs involved, and tax treatment. Let’s dig in.
How to invest in the US stock market from India?
Buying US shares involves buying into the US stock market and acquiring stocks in firms based in America. By purchasing US equities, Indian investors can achieve geographical diversification and get a slice of the US market. There are various methods by which you can put money into American equities. Mutual funds, exchange-traded funds (ETFs), and direct shares are some of the popular options.
Most domestic brokers work closely with US stockbrokers who help in the execution of your US trades. To open this account, you may be required to submit several declarations. You can also invest in US stocks from India with an international broker which has a presence in India.
Direct investments
Buying foreign assets directly through a foreign trading account is known as a direct investment.
Opening an overseas trading account with a domestic broker
Comprehending direct investment is crucial for anyone seeking to learn how to buy US stocks from India. You can open an account for foreign trading with any of the brokers.
There may be limitations on the kind of investments you may use or the quantity of transactions you can make, depending on the stock broker. For individuals who prefer to work with well-known domestic companies while expanding their exposure to global markets, this is the best option.
Opening an overseas trading account with a foreign broker
Before creating the account, make sure you understand the terms and the expenses involved. So, before choosing the best broker to buy US equities from India, do your homework. Due to currency rate differential and broking fees, direct investment costs might be substantial.
Indirect investments
Indirect funding is funding that is made indirectly via an intermediary.
Mutual funds
Investors, even with a small capital invested in international equities, might be able to diversify with these funds that are professionally managed. Mutual funds may be actively or passively managed. Active management aims to outperform a benchmark, while the passive approach seeks to mimic the overall performance of an index. US mutual funds open up a world of opportunities for those who want to buy US stocks from India.
Exchange-traded funds (ETFs)
Purchasing ETFs is another great option to gain exposure to companies located in the United States. ETFs are like shares that trade on the market. Purchases of US ETFs directly can be arranged through local or even foreign brokers. Some pure US index ETFs can be purchased through Indian broking accounts that offer international trading facilities for those interested in how to trade in the US market from India.
Investing via new-age apps
The growth of modern investing applications has facilitated investors’ access to global markets, including the US. These apps do not require customers to invest huge amounts of money, but offer them the option to buy fractional shares in US companies. Furthermore, many programs offer robo-advisory offerings, which allow customers to select funding solutions primarily based on their choices.
How much can I invest in US stocks?
The option to invest in fractional shares of US companies has drastically brought down costs for Indian investors. For instance, you can buy shares of, say Tesla, for as little as Rs. 100 through some of the Indian stock broking apps. Under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), Indian residents are permitted to make investments of up to $250,000 (about Rs. 1.9 crore rupees) in foreign stocks in a year.
What are the different charges involved while investing in US stocks?
While investing in US stocks can be lucrative, investors would do well to understand how to buy US stocks from India and the costs and fees associated with such investments.
Tax collected at source
The Indian government debits Tax Collected at Source (TCS) on overseas remittances when you buy US equities from India. The Union Budget of 2023 raised the TCS for foreign remittances under the Liberalised Remittance Scheme (LRS) from 5% to 20%.
Capital gains & dividend tax
Indian investors who trade in US stocks don’t have to go through the painful process of paying their taxes in the US. However, Indian tax rules will be applicable to US investments, but the application will depend on the holding period.
For example, if you sell your US shares for a profit after 24 months of holding, you will have to pay a long-term capital gains tax at the rate of 20%, in addition to surcharge and cess. But if your investment was held for less than 24 months, the short-term capital gains tax will apply, and your income will be taxed as per your slab rate.
Many companies in the US are shareholder-friendly and issue dividends from time to time. Thus, your investments in US stocks and Exchange-Traded Funds (ETFs) can fetch you dividends that are taxed at the rate of 25%. Essentially, the dividend you receive in the US will be given to you after the deduction of tax. Technically, you will have to pay tax on your US dividend in India also, as dividend income is taxable from the financial year 2020–21.
But you need not worry. Because India and the United States are signatories to the Double Taxation Avoidance Agreement (DTAA).
The DTAA treaty allows you to balance your tax liability in India against your dividend tax deducted in the US. So you will be able to adjust the tax paid in the US and adjust it with the tax liability in India.
Bank charges
Another crucial factor to take into account when buying US equities is bank fees. Your bank could charge you when you move money from your Indian bank account to your foreign broking account. These may consist of fees for quick transfers, wire transfers, and currency exchange. The bank and the amount being transferred determine the fees.
Brokerage fees
The platform or broker you use to invest in US equities will charge you broking costs. Different brokers may charge different rates for these services. A percentage of the transaction amount may be charged by some platforms, while a flat fee may be charged by others for each transaction. Furthermore, some brokers provide trades with no commission, but they may also profit from increased foreign currency rates or other unstated costs.
Foreign exchange rate
When learning how to trade in the US market from India, the foreign currency rate is a crucial consideration. Your investment profits may be greatly impacted by the exchange rate at which you convert Indian Rupees (INR) into US Dollars (USD). You receive fewer dollars for your rupees with a higher exchange rate, but a lower exchange rate is advantageous to you. A margin on the foreign exchange rate is typically added on by banks and brokers, adding to the expense.
Reasons to invest in US stocks from India
Despite the difficulties involved in buying US stocks from India, there are clear benefits for your portfolio if you decide to invest in US stocks from India.
Diversification
Numerous variables significantly impact a country’s stock market. Diversifying your portfolio is a smart move if you want to guard your investments against an Indian stock market crash. Although gold and bonds are useful hedges against such risks, buying US equities can also help diversify your portfolio and position you for profits.
Currency benefits
Indian investors might profit from currency swings by purchasing US equities. As a worldwide reserve currency, the US dollar frequently appreciates in unpredictable economic times. When translated back to Indian Rupees, investments made in US equities might yield higher profits if the currency rate is favourable.
Exposure to global brands
Access to well-known multinational brands and businesses with a significant international footprint is provided by US markets. Indian investors can gain exposure to well-known brands and goods with a substantial worldwide reach if they invest in US stocks from India.
Innovation
United States is a magnet for bright minds worldwide. To provide cutting-edge solutions, US businesses are always innovating. Companies like Amazon, Tesla, and Meta have been experimenting with disruptive solutions across several industries in recent years. You can gain exposure to these by making investments in US firms.
Things to remember before investing in US stocks from India
Promising prospects exist for Indian investors in US stocks, but caution is warranted. Begin by getting acquainted with the characteristics of the US market, like its rules and trading hours. It is essential to comprehend the patterns and volatility of the market. Select a reputable broking company with a user-friendly platform that gives access to US markets. Verify the brokerage’s reputation and level of regulation. Furthermore, understand the effects that foreign exchange rates may have on your earnings. Indian Rupees (INR) must be converted to US Dollars (USD), and changes may have an impact on your investment returns.
Be mindful of the US and Indian tax laws. To avoid paying taxes twice, learn about the tax agreements between the two nations. Finally, to properly minimize risk, diversify your investments. Keep these factors in mind while you consider how to trade in the US market from India.
