Investing In Indian Stocks From The Us
The most common choice among investors includes investing in India-focused mutual funds in the US, Exchange-Traded Funds , and Exchange-Traded Notes based on Indian stock or American or Global Depositary Receipts .
To have access to the Indian stock market from the US, you will have to either open an account with an international brokerage firm regulated by the U.S. Securities and Exchange Commission or open an account with a SEBI-registered Indian stockbroker.
You can open an account with any known Indian brokerage firm such as Zerodha, Sharekhan, Motilal Oswal after providing the prerequisites to start trading in the Indian stock market.
International brokers such as Interactive brokers having a presence in the NSE allows you to trade in Indian shares, options, futures, indices. You can open a brokerage account to start buying and selling stock directly from the Indian stock exchange.
Non-Resident Indians, as well as resident Indians, have the opportunity to open specific accounts with such brokers. Through these accounts, Indian investors can also access NSE stocks based on their location.
Mutual Funds And Exchange Traded Funds
The easiest and most effective way to invest in the US stock market is by investing in mutual funds and etfs.
The best thing about investing in the US stock market through mutual funds and ETFs is that you dont need to open any us stock brokerage account.
There are a number of mutual funds and ETFs that invest in the US stock market.
You can invest in those mutual funds/ETFs to indirectly invest in US stocks.
The disadvantage of mutual funds and ETFs is that you have to invest in a basket of stocks, you cant choose an individual stock to invest in.
Mutual fund is one of the best ways to invest in us stocks from India
Here are some mutual funds you can look into:
- Nippon India US Equity Opportunities Fund
- Aditya Birla Sun Life International Equity Fund
- SBI Magnum Global Fund
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While The Indian Stock Market Provides Ample Long
As an investor you keep looking for opportunities to grow your wealth. While the Indian stock market provides ample long-term growth opportunities to investors, diversifying the portfolio across nations brings in the much-required stability to the stock portfolio over the long term. On the back of the US Fed infused global liquidity, the market worldwide showed strength largely from April 2020 onwards. Now, the situation is not the same and in the backdrop of rising interest rates and falling liquidity, the economic parameters may take the front seat once again. How the central banks react to rising inflation and how far the impact could be is still an unknown factor. How global economies will get impacted remains to be seen in 2022 and the only way for investors is to be better prepared by remaining diversified.
Taking some exposure in the US stock market may be explored by those who are looking to diversify in international stocks. A low correlation between these two economies of the world can provide a high risk adjusted return over a longer period of investing.
You may buy individual US stocks such as Apple, , or Facebook or even invest in various ETFs catering to specific sectors or leading US indices. There are ETFs that track Nasdaq 100 and even S& P 500, the two leading US stock market indices in America.
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Why Should You Invest In Foreign Stocks
Before we start this post, let us first discuss why should you invest in foreign stocks? Are they better than Indian companies? Here, you need to make up your mind why you want to invest in foreign companies.
There are over 5,500 listed companies in the Indian stock market. Arent they enough? Why do you need to invest in alternative stocks? Further, which one is better to invest in- Indian companies or foreign companies?
Well, We are not really in a position to answer the second question. It wont do justice if a guy in his 20s sitting on the comfort of his couch judges these Indian vs MNC companies and choose which one is better.
These are giant multi-billionaire companies that we are talking about here. Google, Apple, Facebook, Amazon, Samsung, Cisco, Tesla, etc are too big companies to comment upon. These companies have lots of cash, highly qualified professionals, employees in their management team and they are big innovators in their industry.
Anyway, there are even many big Indian companies that can give competitions to many foreign companies. Now, let us answer the first question i.e. why invest in foreign stocks. Here are my personal learnings on this question.
How To Invest In Us Stocks From India
- 02 Nov 2021
- 5 min read
The US stock market is home to some of the best stocks in the world likeFacebook,Google,Apple,General Motors, etc. Buying such stocks allows you to participate in their growth story while allowing you to diversify beyond the Indian stock market. There are different Indian platforms that allow you to invest in US stocks as there are no US stock brokers in India.
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Let The Numbers Speak
We ask a simple question over here.
What would be my net returns if I make 15% on my International/US Stocks over two years?
Here we look at it for two different allocation sizes, 1 Lakh and 5 Lakhs.
2 years because that is the minimum time period required for international investments to qualify as long-term.
If you invest 1 Lakh and make 15 on it, your net returns would be close to 10.5%, a deviation of 4.5%, and if you invest 5 Lakhs instead, the deviation reduces to 3.30 %, thats approximately 25% lower. Either way, at max, you can bring it down to 3%.
Compare that to a 10% capital gains tax on an Indian equity investment which applies only upwards of 1 Lakh of long-term capital gains.
With an increased upfront investment, we gain a bit, but that has its limit you would still end up with a 3% deviation minimum. I am not even including other administrative and compliance costs here.
Be Ready For The High Charges
While investing in international stocks, youll be transacting in foreign currencies. For example, if you are trading in the US stock market, you have to pay the brokerages in the US dollar.
And hence, the stock brokerages may be a little higher compared to the charges in the Indian stock market. Similarly, the annual/monthly maintenance charges may also be higher compared to domestic accounts.
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Taxes For Investing In The Us Stock Market
Profits earned on selling US stocks are known as capital gains. Generally, capital gains are taxed according to the holding period. Youâd be happy to know that US stocks sold for a profit are not liable for any tax in the US.
Thatâs because India and the US have a double taxation avoidance agreement. This means that youâll only have to pay a tax on the capital gains according to Indiaâs tax rules.
However, dividend income is taxed in both countries. That said, letâs look at the tax implications of investing in US stocks from India.
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Is it good to invest in US stocks from India?
Abosuletly, yes diversification is very important in investing. Investing in US market is safe because US market is less volatile than Indian market and US stocks have very blue chip stocks like APPLE, TESLA, AMAZON, MICROSOFT, GOOGLE AND WALMART. These are industry leading company, you can invest any of them after your full research like assets, revenue, turnover, profit and EPS of company last 5 years performance.
How are US stocks taxed in India?
Flat 25% taxed on dividend and profit you earn from US market.
Which is better Indian stocks or US stocks?
Investing in US market is safe because US market is less volatile than Indian market and US stocks have very blue chip stocks like APPLE, TESLA, AMAZON, MICROSOFT, GOOGLE AND WALMART. These are industry leading company, you can invest any of them after your full research like assets, revenue, turnover, profit and EPS of company atleast 5 years performance.
Is it good time to invest in US stocks?
Yes, Investing in US market is safe because US market is less volatile than Indian market and US stocks have very blue chip stocks like APPLE, TESLA, AMAZON, MICROSOFT, GOOGLE AND WALMART. These are industry leading company in the world.
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Investors Will Be Allowed To Trade In Eight Key Us Stocks Such As Tesla Apple Amazon Meta Platforms Microsoft Netflix Walmart And Google Parent Alphabet
Indian investors will be allowed to trade in eight key US stocks such as Tesla, Apple, Amazon, Meta Platforms, Microsoft, Netflix, Walmart and Google parent Alphabet via unsponsored depository receipts on NSE International Exchange .
NSE IFSC, a wholly owned subsidiary of the National Stock Exchange of India , has permitted trading in select US stocks through the NSE International Financial Services Centre platform.
Trading in other 42 US stocks will commence in a phased manner. These include Berkshire Hathaway, Adobe, Mastercard, Procter & Gamble, Morgan Stanley, Nike, PayPal, PepsiCo, Pfizer, and Intel among others.
The scheme enables Indian investors to invest in US stocks under the LRS framework of RBI which permits the resident individuals to remit up to $2,50,000 per financial year.
The entire trading, clearing, settlement and holding of US Stocks will be under the regulatory structure of IFSC Authority, NSE said in a circular.
“Trading members are required to note that any remittances made by the clients for the purpose of intra-day trades in NSE IFSC Receipts would be considered as investment in securities and would be permitted through the LRS route subject to the condition that no intraday positions/trades should be permitted which would exceed the overall LRS limit of $2,50,000 per financial year,” it said.
All the trades will also be covered under the investor protection framework at NSE IFSC.
Invest In Indian Stock Etfs
Another excellent way to invest in Indian stocks is through ETFs. These funds combine the qualities of mutual funds with the flexibility of stock trading. Furthermore, unlike mutual funds that have to be purchased from a fund company and are priced at the end of the day, ETFs trade throughout the day like stocks.
ETFs are also diversified and passively managed. This means that instead of concentrating on investing in one or two stocks, they generally track a broad basket of stocks or a benchmark index, which improves the diversification of your investment.
Another major advantage of buying shares in an ETF is that you can purchase them through reputable brokers, such as Interactive Brokers, E*TRADE and TD Ameritrade for a low commission cost. You can also purchase them through digital wealth management firms like Betterment or Wealthfront for a 0.25% management fee.
Some of the top ETFs that include Indian stocks are:
- iShares India 50 ETF
- iShares MSCI India ETF
- WisdomTree India Earnings ETF
- Franklin FTSE India ETF
- Invesco India ETF
- iPath MSCI India ETN
- First Trust India NIFTY 50 Equal Wtd ETF
- WisdomTree India ex-State-Owned Entrprs
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Now Here Is My Advice:
The first is about Overseas trading a/c vs. Mutual funds
You should open an overseas trading a/c only if you know exactly shares of which companies you need to buy and that should be backed with solid analysis. If you dont have that clarity, then investing through mutual funds is a better idea.
Dont get too fascinated by the tech stocks.
Just because you see everyone using their products or services doesnt mean that they are great investment opportunities. If you would have invested in Facebook at the beginning of 2018 by the end, you would have lost 30% and some 15% in Apple. So do extensive research before making any decision.
The cost involved in investing directly in US companies is considerably high. When you add up the brokerage, account charges, currency conversion charges etc, I wonder whether its all worth the effort. Either way, you should not ignore them.
Dont forget that if you invest directly in the US market through an overseas trading account, you will have to pay the taxes based on tax rules in that country. The US considers any profit made within 3 years of investment as short term gains and they are taxed at 20%. So any profits will come after deducting the taxes. You will also have to make disclosures in Indian tax returns.
Invest, dont trade
Dont put more than 10% capital in outside markets.
Ways To Invest In Us Stocks For Indian Mf Investors
Currently there is only one way to invest in US stocks via Indian mutual funds. Individuals can make investments in US stocks by opting for US-focused international mutual funds. These are mostly overseas FoFs or other international mutual funds.
An international mutual fund is a scheme that predominantly invests in equity or equity-related instruments of entities listed in the markets of a foreign country. It also invests in debt securities.
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Invest In Indian Stock Adrs And Gdrs
You may already have access to the Indian stock market through ADRs and GDRs through your current brokerage.
Some of the largest publicly held companies in India list their shares on U.S. and U.K. exchanges through these depositary receipts.
You could buy these depositary receipts through a commission-free broker like Webull or Robinhood, which offer free stock trading. Indian ADRs are listed on the New York Stock Exchange and the NASDAQ exchange, while GDRs trade on the London Stock Exchange . Some Indian stock ADRs trade on the over-the-counter market in the United States.
You could also buy the stocks directly from an Indian exchange in an international account, through brokerages like Fidelity Investments or Charles Schwab. Youll pay additional commissions and possibly currency conversion costs. You might also end up with foreign exchange risk if you live outside of India since stocks are generally priced in Indian rupees on Indias exchanges.
Who Should Invest In International Mutual Funds
Any investor planning to venture into the global investing landscape, especially in US markets, can invest in these mutual funds. That said, investing in international MFs is suitable for individuals with the following objectives:
- Enabling geographical diversification to lower the risk of overall equity portfolio
- Creation of hedge against the depreciation of rupee
- Supplementing domestic exposure to equity with foreign economies
According to some experts American companies, such as Netflix, Amazon, Facebook, Microsoft, could be well-positioned to handle any disruptions in the global economy.
However, no investment should be considered completely risk-free. A tech slowdown in the US can hamper investments in such big stocks as well.
Typically, international mutual funds are well-suited for investors with a long-term investment horizon and higher risk appetite.
Moreover, they should be comfortable with the associated risks of investing in these MFs.
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Things To Remember Before Investing In Us Stocks From India
- Open an overseas trading account if you have the time and expertise to analyze the US market and economy and make informed decisions.
- International investing attracts more charges as compared to domestic investments. Look for the account charges, brokerage, and currency conversion charges, etc. Hence, ensure that you understand all charges well.
- Investing is more cost-efficient than trading in the US market. This is because high charges can eat away into the marginal profits that traders usually make. Long-term investing allows you to earn reasonable returns post-charges too.
- Consider applicable taxes as per the US and Indian taxation laws.
- Start small and increase your investment as you gain an understanding of the US markets.
Ok Now That We Have Made A Good Case For Investing In The Us Lets Talk About How We Can Do It
The first method is by opening an overseas trading account through our domestic brokers. You can open these accounts through brokers such as Kotak Securities, ICICI Securities, Religare etc. These brokers have tie-ups with foreign brokers who, in turn, have access to US markets. For example, ICICI Securities has a tie-up with Saxo bank through which you get access to the US market. The process of account opening is a little tedious and requires additional documentation and declarations. You can find the link to these brokers in the description below.
Be aware that there are certain limitations with these accounts such as no margins to trade and you can not short from an Indian account. There is a maximum limit to the investment you can make but that should not be a big deal if you are a long term investor.
The main problem that I see in this method of investing is the high cost of brokerage and high currency conversion charges. Brokerages are of course higher but you also have to deal with charges whenever you convert money from INR to USD and from USD to INR. These charges can add up quickly if you are an active investor. So, please make sure you clearly understand the charges before opening an overseas trading account.
The third and indirect way of investing in the US market is to go through Indian mutual funds that are investing in the US stock market. Some of the mutual funds are Franklin Templeton, Motilal Oswal, Kotak Mutual Fund, Edelweiss, ICICI etc.,
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