Best Ways To Invest In US Stocks From India

You must have heard about NSE and BSE – India’s two most prominent stock exchanges. You can trade Indian stocks on these platforms every day. The NYSE (New York Stock Exchange) and NASDAQ – US stock exchanges are similar to the NSE and BSE.

Along with asset class diversification, you can also try geographical diversification. For that, you can consider investing in stocks of foreign countries like the US. The following sections will discuss how to invest in US stocks from India. 

Can Indians invest in the US stock market?

Yes, Indians can invest in the US stock market. There is more than one way to buy and hold US stocks in your portfolio. Direct equities, ETFs, and mutual funds are just one few of the popular options. 

You can invest in US stocks in two ways from India – indirectly and directly. 

Direct investment options 

There are two options when it comes to direct investment methods: 

Global trading account with a domestic agent 

Many domestic brokers collaborate with US stockbrokers as intermediaries for your trades. You can open an international trading account with any one of these brokers. You might need to submit many documents to open this account.

Depending on the brokerage firm, you can be subject to restrictions on the kinds of investments you can utilise or the number of trades you can conduct.

Overseas trading account with a foreign broker 

Another choice for setting up a trading account for international markets is an international broker's presence in India. Be aware of the costs and terms before opening the account. Therefore, research before selecting the best broker to purchase US stocks from India.

Direct investment costs may be high because of brokerage and exchange rate charges. So, make sure you know all the expenses before opening an account.

Indirect investment options 

Mutual funds 

Through international mutual fund programmes, there are prospects for overseas investments. Some of these mutual funds track various indices for different countries in Asia or South America; most funds track the US market. 

Exchange-traded funds

Unlike mutual funds, Exchange-Traded Fund (ETF) units are traded on the stock market throughout trading hours. You can buy and sell ETF units in the exchanges while they are open, like you would buy and sell stocks. 

You can trade ETFs with a demat account or any brokerage house. Many ETFs provide access to NASDAQ and various other critical international indices. To purchase US ETFS, you can use a domestic or international broker and an Indian ETF of a worldwide index.

Investment apps 

Several start-ups have released mobile apps to assist Indian investors in investing in the US stock markets. Due to regulatory restrictions, some apps might not allow intraday trading in the US market outside India. So, find some of the best apps to invest in US stocks from India and choose your option to proceed with the investment. 

How can I buy US stocks in NSE India?

Before, there were only two ways to buy US stocks: through international mutual funds that buy stocks from other countries or through a US-registered broker. Investing in top US equities on the NSE IFSC (International Financial Service Centre) Exchange is your third alternative right now. 

The NSE IFSC exchange is located in Gujarat’s GIFT City (Gujarat International Finance Tech City), and Indian retail investors can trade US stocks there starting March 3, 2022.

Eight US stocks are currently available for purchase on the NSE IFSC Exchange. They are - Microsoft, Netflix, Apple, Amazon, Walmart, Alphabet (Google), Meta Platforms (Facebook) and Tesla. This number will rise to 50 US stocks, gradually adding to the market. The exchange's trading hours will be the same as the NYSE's (New York Stock Exchange). Therefore, the NSE IFSC trading hours are from 2:30 pm to 8 pm IST.

Your domestic Demat account will not work for trading these stocks. You will need to open another special Demat account. Here is how:

• Open a trading and Demat account with a broker registered with the IFSC. Get in touch with your existing broker affiliated with NSE IFSC to find out if there are any requirements you need to satisfy before you can begin trading US equities on the global exchange.
• You should transfer funds from your Indian bank account to the broker's IFSC-registered account. Currency conversion is required to invest in NSE IFSC US stocks because deals on the exchange are made in dollars instead of Indian rupees. Once your money has been sent to the account of the IFSC-registered broker, you can begin trading in US stocks listed on the market.

Charges Involved in Investing in US Stocks from India

Tax Collected at Source (TCS):

Rate: 20% TCS applies on remittances exceeding Rs. 7 lakh under the RBI’s Liberalised Remittance Scheme (LRS) for US stock investments (effective October 1, 2023).

Refund: TCS can be claimed when filing your Income Tax Return (ITR) in India.

Capital Gains Tax:

Short-Term Capital Gains (STCG): Gains from stocks held for less than 24 months are taxed as per your income tax slab in India.

Long-Term Capital Gains (LTCG): Gains from stocks held for more than 24 months are taxed at 20% in India.

Dividend Tax:

US Tax: Dividends from US stocks are subject to a 25% withholding tax in the US.

DTAA Benefit: Under the India-US Double Taxation Avoidance Agreement (DTAA), you can claim the tax paid in the US as a foreign tax credit to offset your Indian income tax liability.

Bank Charges:

Foreign Exchange Conversion Fee: Up to 2% for converting INR to USD.

Transfer Fee: Charged for overseas fund transfers.

Account Setup Fee: Some banks may charge a one-time fee for setting up an account for international investments.

Brokerage Fees:

Vary by broker, it can be a flat fee per trade or a percentage of the traded value.

Check your broker’s fee structure for clarity.

Foreign Exchange Rate Impact:

Fluctuations in INR-USD exchange rates affect purchase costs, withdrawal amounts, and the number of shares/units allotted.

Additional Considerations

Reasons to Invest:

Diversification: Mitigates risks tied to Indian market volatility.

Historical Performance: US markets have historically outperformed Indian markets with lower volatility.

Access to Global Leaders: Invest in companies like Amazon, Apple, Tesla, and innovative startups in AI, ML, etc.

Currency Gains: Potential for higher returns due to USD appreciation against INR.

Investment Approaches:

Direct Investments: Offer control but require market knowledge and regulatory compliance.

Mutual Funds/ETFs: Provide diversification and professional management, ideal for passive investors.

Online Apps: User-friendly but may have higher fees or limitations; verify platform reliability.

Key Reminders:

Currency Exchange: Monitor forex rates and fees, as they impact returns.

Tax Compliance: Consult tax professionals to navigate DTAA and reporting requirements.

Regulatory Compliance: Ensure your investment method adheres to RBI and SEC regulations.

Risk and Goals: Align investments with your risk tolerance, market knowledge, and financial objectives.

Conclusion

Investing in US stocks from India offers diversification and growth potential but involves costs like TCS, capital gains tax, dividend tax, bank charges, and brokerage fees. Currency exchange rates and regulatory compliance are critical factors. Choose an investment approach (direct, mutual funds, or apps) based on your goals and expertise, and consult professionals to effectively manage tax and legal obligations.