Looking to diversify your portfolio beyond the Indian stock exchange? Then, investing in the US stock market must have crossed your mind. And why not? The US stock market has been more stable than other stock markets worldwide.
Not to mention that most internationally renowned mega corporations are based in the United States. So, you get an opportunity to invest in stocks of giants like Google, Apple, Amazon, Tesla, Meta, and more.
That is the reason why more Indian investors today are exploring the US stock market. And even countless investment platforms have streamlined the entire process of investing in US stocks.
So, how can you invest your money in the US stock market from India? How much money can you invest? What are some charges and taxation to keep in mind? We answer all your questions in this blog. Read on.
Investing in US Stocks from India
Indian Investors have two options for investing their money in the US stocks from India:
1. Direct investment in shares
2. Indirect investment in shares through mutual funds and exchange-traded funds (ETFs)
Let’s explore the two ways in detail.
1. Direct Investments
As the name suggests, direct investment is when you purchase the stocks directly from the US stock exchange. All you need is an overseas trading account to make direct investments in the US stock market. There are two ways you can acquire an overseas trading account:
A. Via Domestic Broker
The first way to invest in US stocks is by opening an overseas trading account with a domestic broker with links to American stockbrokers. These domestic brokers will then act as intermediaries between you and the US brokerage firm.
You can invest in US stocks as you would in any Indian stock using your broker’s investment platform. However, you may have to deal with extra charges since two brokerage firms are involved.
B. Via Foreign Broker
Alternatively, you can open an overseas trading account directly with a foreign brokerage firm. Quite a few foreign brokers operating in India allow investors to open trading accounts for investing in the US stock market.
Foreign brokers may have slightly different paperwork and fee structures, so do your research and read all the fine print before investing.
2. Indirect Investments
Investors with a low-risk appetite make indirect investments in the domestic stock market without exposing themselves to the market’s volatility. You can make similar investments in the US stock market as well. Your options are:
A. Mutual Funds
Mutual funds, as you know, pool money from investors and invest it in stocks and other securities. You can invest in mutual funds that invest in US stocks without requiring an overseas trading account.
In most cases, you will either invest in a feeder fund or an international mutual fund. A feeder fund invests your money in a master fund based in the United States. An international mutual fund, on the other hand, invests only in equity and equity-related instruments.
B. Exchange-Traded Funds (ETFs)
ETFs are like mutual funds, pooling investors’ money to purchase stocks and bonds. However, they are traded on the stock exchange like a regular share. You can easily find Indian ETFs that invest in US stocks.
However, before you can invest in an ETF, you will need a demat and trading account with a brokerage firm that facilitates trading on US stock exchanges. Then, you can simply look for ETFs in the US stock market and invest in ETFs that align with your financial goals and risk capacity.
Annual Investment in US Stocks Allowed by RBI
The RBI (Reserve Bank of India) decides the amount you can invest overseas under its Liberalized Remittance Scheme. At present, Indian investors can invest up to $250,000 in a financial year, which at the current exchange rate ($1 = Rs 83.22) roughly equals Rs 2.08 crores.
Charges and Taxes Involved While Investing in US Stocks
1. Brokerage Charges: Brokers will charge you a fee for facilitating the trading of stocks.
2. Bank Charges: These include charges levied by your bank, like account setup fees, foreign exchange conversion charges, and fund transfer charges.
3. Tax Collected at Source (TCS): Under RBI’s Liberalized Remittance Scheme, no TCS is levied on remittances up to Rs 7 lakhs. For remittances above Rs 7 lakhs, investors must pay 20% TCS.
4. Capital Gains and Dividend Tax: The dividends you receive will be taxed in the USA at 25%. India and the US have a Double Taxation Avoidance Agreement under which you can claim credit for taxes paid abroad. So, you do not have to pay dividend tax in India.
As for capital gains tax, US doesn’t charge any tax on capital gains from your investment. However, you are liable to pay capital gains tax in India.
For mutual funds sold within 24 months from the date of purchase, short-term capital gains tax is levied as per your income tax slab. However, if you sell mutual funds after 24 months, you must pay 20% long-term capital gains tax.
Final Words
The US stock market has historically performed better than the rest of the world. So, if you plan to diversify your portfolio by investing abroad, you should explore the US stock market. You will get access to shares of many global Fortune 500 companies, giving you stable and guaranteed returns.
If you need help curating a portfolio that fits your risk profile and investment goals, turn to Tata Capital Wealth. We offer tailored services to our investors, helping them find the best stocks and mutual funds that suit their needs.
Visit the Tata Capital Wealth website to know more.
16 October 2023
5 mins read
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