How could Indian investors invest in U.S markets?

A.)There are 2 ways to invest in US markets from India:

1.)Direct Investments

2.)Indirect Investments?

1.a)Overseas Trading Account with a Domestic Broker:

To start investing in the US stock market from India, you can open an overseas trading account with a domestic brokerage firm that has tie-ups with US brokers.?In this method, your domestic broker will act as an intermediary, facilitating and executing your trades. However, depending on the broker, you might have to weather trade caps and restrictions on investment vehicles.?

1.b)Overseas Trading Account with an International Broker:?

This route allows you to tap into the US stock market without intermediaries.?You can opt for foreign brokers like Ameritrade, Charles Schwab and others that have an Indian presence to start directly investing in US stock market.

1.c) NSE IFSC:?

You can also trade US stocks through the NSE IFSC( International Financial Service Centre), a wholly-owned subsidiary of the National Stock Exchange (NSE), located in Gujarat’s GIFT city ( Gujarat International Finance Tech City). You will need a new demat account with an IFSCA-licensed broker to start investing.?It’s important to know that investors can only invest in?8 US stocks?which are Amazon, Apple, Microsoft, Walmart, Netflix, Alphabet(Google), Meta Platforms (Facebook) & Tesla. However, the total number is set to go up to 50 in the near future.?

2.a)Mutual Funds:?

This lets you forego the costs of an overseas trading account. This investment route allows you to diversify your investment across a range of asset classes and industries.?However, currently, the MF route remains partially restricted. As per RBI directives, investment through this route is paused as international mutual fund investments have already met the 7 billion industry cap.

2.b)ETFs:

There are two ways of investing through ETFs (Exchange Traded Funds).?

-The first entails purchasing US ETFs via a domestic or foreign broker.?

-The second is the indirect route, where you can purchase Indian ETFs of US indices.?

The lower expense ratio of ETFs makes them more favourable options than actively managed funds.?

3.)Mobile Apps:?

There are actually a few apps today that allow you to invest directly into US stocks without charging any brokerage or commissions, zero withdrawal charges, real time investing, paperless account creation & even allows you to own fraction of a stock with amount as low as Rs100 & even do SIP in the US stocks every month or every week. Such apps are, INDmoney, Fi Money app, etc. However, we suggest you to have deep insight into these apps before starting as we don’t have any sort of correspondence with them.

Fractional Share Ownership:?In the case of highly priced shares, a single stock can cost thousands of dollars, however with fractional investing you can purchase as small as 1% of the entire share, i.e. as small as 1/1000th?of a share & even smaller which obviously isn’t allowed in Indian stock market & that’s one of the advantages of investing in US market.

B.)Why should you invest in the US Markets??

1.)Geographical Diversification:?

Diversifying your portfolio helps weather market-linked fluctuations. By investing in US stocks from India, you essentially broaden your investment exposure. This allows you to mitigate economic risks associated with the crests and troughs in the Indian market.?

2.)Opportunity to Invest in Top Companies?:?

Investing in the US stock market from India gives you access to several blue-chip companies like Amazon, Apple, Tesla and others. The sheer size, trade volume and investment options available in the US stock market present a unique investment opportunity & gives you access to?“Invest in what you use”?methodology like Microsoft, Apple, Amazon etc.

3.)Tapping into Innovation?:?

As the nerve centre of innovation, the United States is home to thousands of promising enterprises. With segments like robotics, AI, ML and biomedicine flourishing, investing in US stocks helps you grow your wealth on the back of all the ground-breaking progress being made.?

4.)Potential Currency Gains:?

Currency exchange rates add to the gains you stand to derive from investing in the US stock market. The US dollar was at ?63 in January 2018 and stood at ?83 as of January 2023. That’s 30% appreciation in 5 years. Also, it has been derived historically that Indian rupee on average depreciates 3% against USD every year hence, investing in US stocks lets you gain from sheer growth in dollar value as well.

5.)Higher Returns with Less Volatility:?

While all markets go through ups and downs, the Indian stock market has recorded bigger swings than the US stock market. Other than the Russia -Ukrainian conflict of 2022, which shook most global markets, the relative stability and manageable cyclical changes in the US market make it a less volatile option for investors. This, coupled with the consistent appreciation of the Dollar, has ensured stable returns for investors.?

C.) Things to Consider Before Investing in the US Stock Market

1.)Taxation:?

Your profits from investments in the US stock market are covered under the DTAA or Double Tax Avoidance Agreement. As per the agreement, the same income cannot be?taxed?twice. Dividend income from US stock investments is taxed at 25% for Indians and can be claimed as Foreign Tax Credit on domestic tax fillings (due to DTAA).?

While capital gains are immune from taxation in the US, in India, there’s a 20%?long-term capital gains tax?levied on holdings of foreign shares for two years or more. Capital gains for a short-term holding (less than two years) are added to your annual income and taxed as per your income slab.?

2.)Investment Cap:

Investments in the US stock market are regulated as per RBI’s Liberalised Remittance Scheme or LRS. The LRS mandates a yearly investment cap of?$250,000?(Rs 20 odd crores)?per investor. Your investments have to remain within this stated investment cap.?

3.)Ancillary Charges:?

From brokerage fees, FX conversion charges and transaction fees to annual maintenance fees, there are quite a few overheads to consider.?The foreign exchange rate at the time of purchase or withdrawal can impact the costs and the number of units allotted.

Investing in another market altogether allows you to continue growing a part of your wealth even if one market isn’t doing particularly well temporarily.The US economy may not be growing as fast as India’s, but it is home to some of the largest tech and pharma companies in the world. Investing in the US stock market also assures you of more stable wealth creation, given that the top US stocks have a very high market capitalisation. This means, the total pool of invested money in these stocks is to the tune of trillions of dollars, making them relatively safer to invest in.