How to Invest in the US Stock Exchange from India
The US stock exchange is known for one of the best stocks in the world like Apple, Google, Facebook, General Motors, etc. If you buy these stocks, you can be a part of their growth story and diversify your portfolio beyond the share market.
As there are no US stockbrokers available in India, you can use different Indian platforms that allow you to invest in US stocks. How to invest in the US stock exchange from India? Let’s take a look at two ways of investing in the US stock market from India:
Invest in US Stocks via Direct Investment
You can invest in US stocks directly by opening an overseas trading account with a foreign or domestic broker. However, you should be mindful of the charges before you select the best application to invest in US stocks from India.
Open an Overseas Trading Account With a Domestic Broker
Many domestic brokers have tie-ups with the U.S. stockbrokers. These brokers execute your trades by acting as intermediaries. You can open an overseas trading account with any such broker. You need to submit a set of required documents to open the account.
Based on the brokerage firm you choose, you might face restrictions on some investment vehicles or several trades that you make, etc. The cost of investing can be higher based on brokerage and currency conversion charges. Therefore, you must be aware of all the costs before opening a trading account with a domestic broker.
Open an Overseas Trading Account With a Foreign Broker
You can open an overseas trading account directly with a foreign broker with a good presence in India. Some of the examples of foreign brokers are Ameritrade, Charles Schwab, etc. Make sure that you know the charges and fees before you open the account.
Therefore, you should conduct thorough research before selecting the best broker to invest in the US stock exchange from India.
Invest in US Stocks via Indirect Investment
You can also take an indirect position in US stocks without direct investment in them. You can go with any of the following options:
ETFs or Exchange Traded Funds
You can gain exposure to US stocks by investing in ETFs. There are indirect and direct routes available for Exchange Traded Funds. You can buy US ETFs via an international or domestic broker, or you can buy an Indian ETF of international indices.
As the investment is made within India using Rupees, there is no investment limit for residents of India, unlike the brokerage method. However, this approach can be the most costly. Keep in mind that the expense ratio (or the fee charged to manage the fund) for these funds tends to be higher.
This is because the fees are for both the general management of the fund plus an additional expense charged by underlying international schemes they invest in. For example, the Franklin Templeton Feeder Fund in India invests in the Franklin Templeton US Opportunity Fund. The Feeder Fund charges a 1.54% expense fee which is on top of the 1.82% fee charged by the US opportunity fund.
There are multiple applications launched by Indian start-ups to help Indian investors put their money in the US stock market. However, some applications do not allow intraday trading in the US market from India due to regulatory requirements.
How Much Can You Invest in US Stocks?
RBI or the Reserve Bank of India released guidelines under the Liberalized Revenue Scheme (LRS) that permitted an Indian Resident to invest up to 1.9 Cr Rupees or 2,50,000 dollars per year without any permission.
What Are the Different Charges Associated With Investing in US Stocks?
Capital Gains and Dividend Tax
In the United States, the dividends are taxed at a rate of 25% for Indian citizens. As per DTAA or the Double Tax Avoidance Agreement, the investors can claim credit for taxes paid abroad so that they don’t have to pay tax on the same income twice.
You are liable to pay tax on the capital gains in India. However, there is no capital gains tax on your investments in the US.
Brokerages charge a fee on the selling and buying of shares.
Tax Collected at Source or TCS
A 5% TCS or Tax Collected at Source is levied on all remittances above Rs 7 lakh under the LRS or Liberalized Remittance Scheme of RBI. This will be applicable on the amount above Rs 7 lakh and not the total amount. When the taxpayer files an income tax return, the TCS can be claimed as a refund.
Most banks charge foreign exchange conversion fees and transfer fees. You may also have to pay a one-time account setup charge.
Foreign Exchange Rate
The foreign exchange rate at the time of withdrawal or purchase can impact the costs and the number of units allotted. Therefore, you should keep a track of the ups and downs of the exchange rates when investing in the US markets.
Things To Keep in Mind Before Investing in the US Stocks From India
- You should open an overseas trading account if you have the time as well as the expertise required to study the US market and its economic conditions.
- You will have to pay more charges for International investing as compared to domestic investments. Take a look at the brokerage, account charges, currency conversion charges, etc. Therefore, you should understand all these charges well.
- Investing option is way more cost-effective than trading in the US market. This is because high charges may eat up the marginal profits that traders usually make. Investing allows you to earn reasonable returns on your investment post charges too.
- You should consider applicable taxes as per the US and Indian taxation laws.
- You should start small and increase your investment as you learn more about the US markets.
There is a strong appetite among the Indian Investors to put their money in the overseas market. Investment in foreign markets allows you to diversify your portfolio effectively. With vast information available online and offline, it is easier for everyone to invest in the US stock exchange from India.
However, you should consider both the pros and cons of the US market before making an informed decision. You should study all the aspects of the US stock market and then make a wise decision based on your financial goals and risk tolerance.
With the right approach and mindset, Indian investors can avail plenty of opportunities to diversify globally and build a sustainable portfolio for long-term wealth creation