How To Invest In Us Stock Via Nse Ifsc
- Firstly you need to open a demat and trading account with an NSE IFSC registered stockbroker. Currently, there are 36 brokers registered with NSE IFSC.
- You have to transfer funds from a bank account to a stockbrokers account. Once the funds are credited to the broker account, you can start trading.
- Investors can start trading with the listed US stocks, but they will get the stocks in the form of depository receipts. These receipts are named as NSE IFSC receipts. The investors can use these receipts for trading transactions via NSE IFSCs registered brokers.
- NSE IFSC authorized financial institutions will buy the shares of the US stocks and will issue retail investors in the form of depositary receipts.
Compliance Costs And Challenges
We are being extremely cautious here, but this needs to be said. The income tax officials in India look at all people holding foreign assets as potential tax evaders.
Technically they dont differentiate between you and someone else holding a bank account in the Cayman Islands, for you know what.
You never know when and why you may get scrutinized by the income tax authorities, perhaps just because you hold foreign assets. In the worst case, you may receive a notice from the tax departments investigation wing seeking to cross-verify the information about your foreign assets. It becomes a bigger pain when you receive dividends from your US stocks since part would be withheld there. You need to pay taxes on the balance amount and get a tax credit for the withheld part.
Getting to the specifics of compliance.
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.
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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.
Other Us Stock Market Indexes
Capitalisation is often the key for index classification small, mid, large-cap.
- For mid-cap, the following are some of the notable indexes:
- S& P Mid-Cap 400
- Communication Services Select Sector
- Consumer Discretionary Select Sector
Also, there are Smart Beta Indexes that are passive indexes built using certain characteristics or fundamental screens. These help to improve the quality of the index constitution. The three smart beta index funds under the Advisors Asset Management are:
- AAM S& P 500 High Dividend Value ETF
- AAM S& P Emerging Markets High Dividend Value ETF
- Advisors Asset Management S& P Developed Markets High Dividend Value ETF
These three smart beta index funds encompass the entire global market for dividend and value investing.
World-class wealth management using science, data and technology, leveraged by our experience, and human touch.
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Nice App For Investment But Not For Trading
The app is very useful to track all investments in 1 place but the app lakes lot of very useful technical features like limit buy, Limit sell, markets sentiment, news related to stocks 1 is buying etc.I would recommend apps like Groww, Upstox for trading.Overall a decent app to just track investments.
How To Get Started
- Login to your ICICI Direct 3in1 account
You need to be existing ICICI Direct Customer to get access to ICICI Direct Global
- Subscribe to a plan of your choice
Choose the plan which works best for you
- Upload your Scanned Documents
Upload latest copy of your PAN card and address proof
- Get access to ICICI Direct Global Investment Platform
Once your details are verified, you can add funds into your account and start investing
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The Allure Of Fractional Shares
You must have heard the Instagram influencers say you can buy a fractional share of Starbucks for less than the price of a Tall Latte. Well, yes, you can. But should you?
Heres what we suggest, if you are in the states and you have a zero-cost brokerage plan, fractional shares are fine. They still have some drawbacks, but we can live with them. But as an Indian Resident, the costs dont justify such small ticket investments.
In other words, if its the concept of fractional shares thats making you invest in international markets, you are better off avoiding it.
Superior Returns Compared To India
The US stock market consistently outperforms the Indian market over the last 10 years. In Figure 1, we compare returns of the DOW Jones Index in the US to the BSE Sensex. During this time period, the DOW returned 196%, while the SENSEX returned 150% .
Figure 1: Returns comparison between the Dow Jones index vs. the Sensex.
In addition to equity returns, the savvy investor should also think about the effect of currency fluctuations between INR and USD. In the past 10 years, the Rupee has depreciated 44% compared to the USD. This has a significant negative impact towards returns of Indian stocks widening the performance gap.
Figure 2: INR to USD exchange rate from the last decade INR has depreciated by more than 44% in the past decade.
You can read more about this topic here.
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Extra: Buying Indian Mf/etfs With Global Equities
There are a number of mutual funds/ETFs that invest in international markets . You can invest in those mutual funds/ETFs to indirectly invest in foreign equities.
This is the easiest approach to invest in foreign stocks. An advantage of investing through mutual funds is that you wont need to open any overseas trading account. Further, you wont also require to invest a hefty amount.
Compared to direct investing in foreign stocks , investing in mutual funds/ETFs are cheap.
For example, Motilal Oswal recently started its subscription for its Motilal Oswal S& P 500 Index Fund. It is an open-ended scheme replicating the S& P 500 Index, which consists of leading 500 companies listed in the US. A few of the popular of popular mutual funds that trade in global equities are
Quick Note: Many other Indian stockbrokers are also planning to offer their clients a facility to invest in the US and foreign stocks. For example, Zerodha is planning to offer option to invest in US stocks with no minimum investment.
However, these features are yet to be launched. Nevertheless, these stockbrokers internally working on these features is a good sign for the Indian retail investors who are enthusiastic about investing in foreign companies.
Start Investing In Us Stocks With Winvesta
Diversifying your investment portfolio across geographies is a great way to generate stable returns and plan for your future. Winvesta enables you to take the first step towards achieving such goals. With 3000+ US securities, a seamless intuitive interface, and strong regulatory compliance, you get the best of everything. Get started today!
Contributed by Swastik Nigam
Swastik is the Founder & CEO of Winvesta. Before Winvesta, Swastik was a Director at Deutsche Bank where he ran a multi-billion EUR global trading book on multi-asset products.
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Investing In Foreign Stocks Through New Startups Apps
In the past few years, many new starts have been launched in India and abroad that helps Indians to invest in foreign stocks. For example, GROWW, Vested Finance, Webull app, etc help Indians to invest in US stocks.
Startups like Vested Finance are a US Securities and Exchange Commission registered investment advisor. Similarly, you can also invest in foreign stocks using the Webull app, another popular startup company that is also committed to building the best investing and trading experience for India and Global stock markets.
Popular Us Investment Glossary
Ok now that you have read the overview on how to buy us stocks from India, here are several glossaries that you need to know.
Investment Indices: Instead of investing in individual stocks, when investing in the US, investors can easily invest in a broad diversified basket of stocks through indices . Several popular US indices are:
- S& P 500: tracks the performance of the 500 largest US companies by market capitalization. In the year 2019, the S& P 500 surged more than 28%, which is the highest increase since 2013.
- Dow Jones Industrial Average: tracks the performance of 30 large US companies trading on the New York Stock Exchange and the NASDAQ. In 2019, the Dow Jones gained 22% for the year.
- Nasdaq Composite Index: tracks over 2,500 securities listed on the NASDAQ. In 2019, the Nasdaq Composite Index broke through the 9,000 level for the first time ever.
- Fractional shares: the ability to buy less than one shares. This means, you can buy high priced stocks such as Apple, Tesla, Amazon for as little as $1.
Figure 5: Annual return of the three major indices in 2019
Sectors: The US is the worlds largest economy and is home to the worlds largest stock market. Its economy can be classified into 11 major investment sectors, which encompasses communication services, energy, real estate and utilities. In 2019, all 11 sectors posted positive returns.
Figure 6: 2019 S& P 500 sector performance
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Open An Account With An Indian Stockbroker
You can also open an account with a SEBI-regulated broker in India. Depending on the amount of money you plan to invest in India, you may have to register with SEBI as a Foreign Institutional Investor .
You must first register for a PAN card that allows Indian tax authorities to track your investments and tax liabilities. You will also need to open a bank account in India since one is required to transfer funds to your broker in order to buy Indian stocks and to deposit money in after you have sold your stocks. You will also be required to open a Demat account.
You might be better off opening an account with a full-service broker in India that can give you access to research and tailored guidance on investing if you need advice on which stocks to buy and what kind of investments would suit you best.
This kind of broker can give you an idea of how your investments will be taxed and so can an accountant. Keep in mind that if you hold an investment in India for more than one year, you may not be liable for capital gains tax.
Some of Indias best stock brokerages include:
- ICICI Direct
What Are The Brokerage Charges
Different entities charge different rates and have different structures. For example, brokers might charge a fixed fee per trade or charge a percentage of total trade or total asset. In contrast, Vested offers zero commission, unlimited investing . Since the investing process requires international transfers from Rupee to USD, in addition to any potential brokerage fees, there might be other fees that investors incur in order to invest in the US. These fees could be international wire fees or FX conversion fees that the investors bank charges, which may vary depending on the bank that the investor uses.
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The Concept Of Double Taxation
Investing in U.S. stocks can be daunting if you are unclear about taxation on dividends and capital gains for short term and long-term investments. If you receive dividends from the US market companies in any particular financial year, it will be taxed at a flat rate 25%.
Long-term gains derived will be taxed at 20% in India with no tax implications in the US. In terms of short-term gains however, the amount received will be taxed according to the slab rates provided by the Income Tax department.
If you are receiving profits after tax deducted at source, you can state the same while filing your taxes. India has double tax avoidance agreements with over 88 countries like the U.S., Australia, Canada, China, Korea, Russia, UAE, UK and the tax withheld in the U.S. can be set off against the tax liability in India.
Profits Are Subjected To The Currency Exchange Rate
When you invest in foreign stocks, theres always currency risk involved. Let us understand this with the help of an example.
Lets assume that you are investing in the US stock market. When you bought the US stock, the currency exchange rate was $1= Rs 68. However, next year- when you sold the US stock, let say the Indian currency got stronger, and the currency exchange rate becomes $1 = Rs 62.
In such a case, you have already lost 8.8% due to the change in the exchange rate. Thats why when you invest in foreign stocks, profits are always subjected to the currency exchange rate.
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Overview: Investing In The Indian Stock Market
Foreign investment in India began in the 1990s, when the country began allowing foreigners to participate in 2 major categories: foreign direct investment and foreign portfolio investment .
FDIs are active investments and you can get involved in management. FPIs are passive investments made by foreigners who primarily buy Indian equities.
The stock markets in India are dominated by its largest exchanges: the Bombay Stock Exchange and the smaller National Stock Exchange , which are both based in Mumbai . All stock exchanges in India have to submit to oversight by the Securities and Exchange Board of India .
These 2 major exchanges both list the same securities and follow the same clearing and settlement process. This can benefit investors since the exchanges vie for order flow, which tens to add liquidity and make the pricing of securities more competitive. Youll need an international broker that has access to these markets or open an account with an Indian stockbroker in India if you live outside of India.
Another popular way to participate in the Indian stock market involves buying American or global depositary receipts . Investors can also acquire shares in exchange-traded funds and mutual funds based on Indian stocks.
Make sure the Indian stockbroker has oversight from the SEBI. If you select a foreign broker, then you should make sure that its overseen by a major regulator, such as the U.S. Securities and Exchange Commission or the U.K. Financial Conduct Authority .
Few Things To Know Before Investing In The Us Stocks
1) Investment in US stocks should be made in US dollars only. The maximum amount invested by an individual should be up to 2,50,000 Dollars per financial year. The retail investors can make the payment via the LRS of RBI.
2) Investors can buy the shares fractionally while buying US stocks. The minimum amount to buy the share is 0.01 Dollars.
3) While investing in US stocks, you must pay the following charges like brokerage, forex inward charges, etc. All the charges will change from broker to broker.
4) There will be charges while withdrawing money from your account.
5) In the US, dividends paid to the investors are taxable. So when a company announces a dividend, the broker will subtract the taxable amount from the dividend amount and will pay the remaining amount to the investors. Usually, the taxable amount on the dividend is flat 25%
6) Individuals who are interested in investing in US stocks can also invest via international mutual funds.
7) The depository receipts you receive will be considered as shares. Every 100 receipts will be considered as 1 share.
8) The trading timings for NSE IFSC is 8:00 Pm to 2:30 Am. Trades can be settled in T+3 days.
9) The trading holidays are based on US and Indian market holidays.
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