US stock markets have been a significant driver of global wealth creation for the last five decades. The emergence of technology giants like Apple, Amazon, and Google has made investing in US stocks even more attractive. In recent years, investing in US stocks from India has become more accessible due to improved regulatory conditions, the rise of fintech platforms, and growing interest among investors.
The various methods for investing in US stock markets:
Direct Investment:
Brokerage firms based in the US, like Interactive Brokers, allow Indian investors to open international trading accounts. Indian brokerages, like ICICI Direct, HDFC Securities, and Kotak Securities, collaborate with US brokers to provide direct investment opportunities.
Fintech platforms:
Fintech platforms like INDmoney, Vested Finance, and Stockal have teamed up with US brokers, allowing Indian investors to open accounts and invest directly in US stocks. These platforms are user-friendly and suitable for smaller investment amounts.
Mutual Funds and ETFs allow Indian investors to access US stocks and international markets. The Motilal Oswal S&P 500 Index Fund and the Franklin India Feeder – Franklin U.S. Opportunities Fund are two of noteworthy mutual funds. Additionally, ETFs on Indian exchanges provide exposure to US indices like the Nasdaq 100 and NYSE FANG+.
Regulatory Considerations
Liberalized Remittance Scheme (LRS): Under Liberalized Remittance Scheme (LRS), resident individuals are permitted to remit up to $250,000 per year outside India for investments and other purposes. This scheme includes investments in US stocks. It is important to understand the transaction fees and tax implications associated with the LRS.
Compliance and Reporting: Investments made under the LRS must be declared in your income tax returns in India. If your total foreign assets exceed a certain threshold, you have to file additional disclosures, such as the Foreign Assets Schedule in ITR.
Fees and Charges
Transaction Fees: Fees differ across platforms, with fintech apps typically having lower fees than international brokers. Some platforms offer fractional investing for high-priced stocks like META, Netflix, Microsoft, and etc.
Currency Conversion Charges: Investors should be aware of transaction fees when converting Indian Rupees (INR) to US Dollars (USD).
Maintenance Fees: Some platforms charge fees for account maintenance and withdrawal for processing transactions. The fees vary between different trading platforms.
Tax Implications
Taxation of dividends: Dividends received from US stocks are subject to a 25% withholding tax according to the tax treaty between the US and India. However, you can claim credit for this withholding against your Indian tax liability under the Double Taxation Avoidance Agreement (DTAA).
Capital Gains Tax: In India, capital gains from selling US stocks are taxed at two rates, depending on the holding period. Short-term holdings held for less than 24 months will be taxed at your income tax slab rate. Long-term holdings held for more than 24 months will be taxed at 12.5%. There is no need to pay tax to the US government.
Benefits of Investing in US Stocks
Reduced portfolio risk: Investing in US stocks provides diversification beyond domestic markets and may reduce overall portfolio risk.
Access to Global Companies: Investors can access major companies like Apple, Amazon, Microsoft, and Tesla.
Currency Hedge: Investing in USD assets protects against the depreciation of the Indian Rupee (INR) against the USD.
Risks to Consider
Exchange Rate Risk: Fluctuations in the INR/USD exchange rate can influence the returns, potentially resulting in either gains or losses.
Market Volatility: Like any other equity investments, US stocks are subject to price volatility affected by economic, regulatory, or political changes.
Political and Economic Factors: Changes in policies, interest rates, and other macroeconomic factors in the US can have a significant impact on the market.
Popular Investments for Indian Investors:
Top US Companies: Leading tech giants such as Apple, Google (Alphabet), Amazon, Tesla, Nvidia, and Microsoft are some of the best choices for investors.
US Index ETFs: There are three US Index based ETFs actively traded on BSE and NSE.
US focused Mutual Funds: Some of the top US based equity mutual funds based on assets under management (AUM) are
Summary:
Investing in the US stockmarkets from India offers a great opportunity to diversify your portfolio. However, it is important to understand the costs, tax implications, and risks involved. Begin with a small investment, choose the right platform, and stay informed about currency fluctuations to enhance your international investment experience.
Disclaimer:
I provide the information and my views on the website only to educate new investors and stock market enthusiasts on equity and other market investments. Please consult a SEBI registered financial advisor before making any investments in the stock or commodity markets. In case of any queries, you can contact me on Contact Form or email: admin@valueinvestingonline.in.
