An Overview – How can Indians invest in US stocks?
The present bull market in the United States has been in place for around 12-13 years, which has resulted in the US markets growing to be over 60% of the global market capitalization. However, the markets lost steam recently as the Fed Increased rates and the Dollar Index surged to 109, sending the rupee to a new low of Rs 79-80 per dollar, so far losing around 7.5% versus the US dollar. This is a source of concern for Indians intending to spend dollars in the future (for example, for travel or their children’s further education) or for investors wishing to diversify their assets to locations like the United States.
Increased Indian investment in overseas stock or debt instruments is predicted to reach USD 1 billion in FY23, up from ~USD 750 million in FY22. Most of these investments are for diversification or investing in US growth firms. From the standpoint of US markets, several strategies exist to diversify your assets. However, it may be useful to have some pointers before answering the question: how can Indians invest in US stocks?
Why Should You Invest in US Stocks From India?
Investing is no longer limited to a country’s boundaries. With international trading accounts, one can now invest across boundaries. The US stock market is one of the primary options for regionally diversifying one’s portfolio. It is one of the most developed nations, with worldwide multinational corporations and technology behemoths calling it home. Furthermore, the US stock market has a relatively low correlation to the Indian stock market, making it an appealing investment option.
The US stock market offers a diverse range of investment choices. The market includes financial instruments that are not available in the Indian market, in addition to bonds, shares and derivatives.
The following are some of the benefits of investing in US stocks from India.
- Diversification: Investing risk can be spread out by diversifying across asset classes. However, the portfolio is still vulnerable to national political and economic risks. Any unfavourable change in the country’s economic policies, GDP or circumstances would jeopardise the investment portfolio. Investing abroad will assist to diversify the portfolio’s geographical risk. As a result, investors may mitigate the influence of local issues on their portfolios.
- Invest In Key Industry Leaders: India has significant global corporations, however, it does not have the top firms in the world. The US stock exchange enables investors to purchase shares in Amazon, Google, Microsoft, Facebook, Apple and Netflix. The shares of all of these companies are not traded on Indian stock exchanges. As a result, investing in the US stock market will provide access to these firms.
- Foreign Exchange Risk Reduction: With time, most Indian consumption has become worldwide. Foreign currency costs have risen, whether for school, vacation or business. Investing in foreign currency establishes a pool of global money, lowering the risk of currency exchange.
- Rupee Depreciation: The rupee has consistently lost its value against the dollar over time. The USD is a haven for most nations, including India, as seen by the Indian Rupee’s depreciation versus the US Dollar. Investors might benefit from a falling rupee since the total portfolio return rises when funds are withdrawn after the rupee falls in value.
- Owning A Subset Of Shares: The US stock exchange features a one-of-a-kind feature that enables investors to hold a portion of a share. Some of the largest corporations in the United States have shares worth $2000 or more. Investing such large sums seems to be unattainable for small investors, especially in the United States. On the other hand, the US stock market permits investors to trade in fractions, and an investor may end up purchasing even half a share of a corporation.
Considerations Before Investing in US Stocks From India
The following are the various factors to consider before investing in US stocks from India:
- Geographical Diversification: The US stock market not only houses US firms but also permits investors to invest in worldwide corporations. The US Stock Exchange is home to major worldwide corporations from Germany, China, Japan, and other countries, for example, BMW, Alibaba, Toyota, and Infosys. Furthermore, a few ETFs on the US Stock Exchange invest in worldwide firms, providing Indians with access to corporations all over the globe.
- Liberalized Remittance Scheme: The Reserve Bank of India’s Liberalised Remittance Scheme permits Indians to send up to $250,000 annually. This comprises both expenditures and investments. As a result, investors may invest in US financial security, savings, real estate, etc. They may also use the funds for travel and other costs. As a result, investors must plan their investments and costs in USD within the $250,000 annual limit. Furthermore, any payment over $250,000 would need clearance from the RBI.
- Taxation: Before investing in any asset, taxation is always an essential factor to consider. It is critical to understand the tax consequences of investing in other nations. India and the United States have a Double Tax Avoidance Agreement (DTAA) that prohibits double taxation of the same income. Furthermore, investors must consider Tax Credited at Source (TCS). According to the new law, all international transfers over Rs 7,00,000 per fiscal year would be subject to a 5% TCS. This is a one-time tax that investors may deduct when submitting their yearly tax returns. TCS is also not an additional expense for investors.
- Foreign Currency: Foreign currency risk is one of the most significant factors to consider when investing in US stocks. Currency rates and foreign exchange significantly influence a geographically diverse portfolio. A falling rupee means a lower investment when investing in the US market. Withdrawing assets from the US during a rupee devaluation, on the other hand, would boost the total portfolio return. Furthermore, a falling USD will diminish the portfolio’s return. Furthermore, conversion fees may apply when transferring INR to USD and vice versa. As a result, investors must consider the foreign currency risk before investing.
- Capital Gains Taxation: Investment capital gains are not taxed in the United States. In India, however, investors must pay tax on overseas capital gains.
- Short-Term Capital Gains Tax (STCG): Capital gains from holding assets for longer than 24 months are subject to STCG. The gains are taxed at the appropriate income tax slab rate for the investor.
- Long-Term Capital Gains Tax (LTCG): Capital gains from holding assets for more than 24 months are subject to a 20% LTCG tax with an indexation advantage. Fees and any other levies are not included.
- Dividend Taxation: Dividends on US stocks are taxed at a fixed rate of 30% for international investors. However, according to the India-US tax treaty, the tax rate for Indian resident investors is 25%. It is deducted before dividend distribution. Indian investors may claim this tax as a Foreign Tax Credit when completing their domestic tax returns.
- Goals: The investor’s objectives are another factor to consider before investing in the US stock market. Everyone’s financial planning should include life objectives. Defining objectives, such as studying abroad, working, or travelling, will aid in financial planning. For any overseas aims, one should invest in things that will assist them in effortlessly achieving their goal. For example, if a person intends to save for their child’s international education, their portfolio should reflect that intention. Proper planning and diversification of assets will aid in generating big profits.
- The United States Regulatory Authority: The US stock market is one of the world’s oldest, most efficient, transparent, and well-regulated marketplaces. It includes some of the biggest corporations in terms of profitability, market capitalization and revenue. The Securities and Exchange Commission (SEC) is the regulatory agency in charge of overseeing the operation of the US stock exchanges. The SEC enforces strict laws and regulations. Its excellent integrity and openness requirements safeguard investors’ trust.
- Additional Fees: One may invest directly in US equities using a US brokerage account. Several platforms provide these accounts. However, they impose a cost for each transaction, a joining fee, and an annual maintenance fee. As a result, one should be completely informed of any such fees for this account. Investors may fund their brokerage account immediately from their bank account. Furthermore, transfer and foreign currency conversion fees differ per bank.
Taking Aid of AI-Powered And Research Tools
The US stock market has approximately 4,000 businesses listed. If you start reviewing the financials of each and every company while looking for attractive firms to invest in, it may take years. Furthermore, reading the balance sheets, profit, and loss statements, and cash-flow statements of all the listed firms makes little sense if you can filter them out based on a few basic criteria such as debt or growth rate. And it is for this reason that screener tools like Finwiz and research tools like Zacks by Stockal may be highly beneficial tools for investors (and traders) to save time and money.
These modern tools are quite beneficial since they may save you significant time. Looking through all the listed firms is unnecessary to identify a few solid ones. You may just apply the basic filter to obtain a list of a few decent ones to look into further.
How to invest in US Stocks from India?
New-age apps have significantly simplified investing in US stocks from India. The expensive wire transfer, which incurred costs such as transfer charges and forex, has been supplanted by much cheaper “direct transfers.”. Aside from that, some brokers are experimenting with zero commission and unlimited investing. Platforms like Stockal are attempting to reduce costs, including withdrawal fees, to bring down the total cost of investing in US equities for Indian investors.
If you are ready to take the first step, establish an account with Stockal, which provides a SIMPLE, SMART, and SECURE investing and trading platform. Stockal is one of the best apps to invest in US markets from India and provides SIPC protection of up to $5,000,000. Choose an intelligent friend to accompany you on your quest to invest in US stocks from India. Visit Stockal for further information on how to invest in US markets. Trying to invest in US stocks from India can sometimes appear very complicated. However, with the assistance and practice of a reputable platform, you can easily master your US investing skills from anywhere in India. You can also keep up with global investing by listening to analyst discussions, articles, and case studies.