If you have invested in the Indian stock market, you have already taken the first step towards your wealth-creation journey. And as with finance experts, diversification must be taken into account. For instance, investing in a different market lets you keep adding to your wealth even if one market isn’t performing very well right now. Although the US economy may not be expanding as quickly as India’s, not to forget, it is still home to some of the biggest pharmaceutical and technology firms in the world.
In this article, let’s look at ways to invest in the US stock market, charges, pros and cons, and more!
Ways to Invest in the US Stock Market from India
Investing in the US stock market from India is simple. There are two-three approaches one may take for this. The foremost and most straightforward approach is to open a Demat and trading account with an Indian broker offering this facility to invest in international stock markets. Once your account has been created and running, you may start buying and selling stocks listed on the NYSE and NASDAQ exchanges.
Following are the ways to invest in the US stock market:
Direct Investment
Opening an overseas trading account with a domestic broker:
To invest in the US stock market from India, you only need to open an overseas trading account with a domestic brokerage company that collaborates with US brokers. Your domestic broker will serve as a middleman, facilitating and carrying out your transactions.
Opening an overseas trading account with a foreign broker:
This makes it possible for you to access the US stock market without any middleman. All you need to do is choose overseas brokers with a presence in India.
Indirect Investment
Mutual Funds:
Opting for this method helps to avoid the fees associated with a foreign trading account. This method also allows investors to diversify their portfolios among asset classes and market sectors.
Exchange Traded Funds (ETFs):
Investing in Exchange Traded Funds, also commonly known as ETFs, can be done in two ways. The first involves buying US ETFs through a domestic or international broker. The second is an indirect approach where you can buy ETFs of American indices.
Investing via new-age apps:
There are numerous apps that allow you to invest in the US stock market. These apps partner with regulated US firms and transact on your behalf. Some advantages include access to multinational companies, portfolio diversification, and exposure to new opportunities, to name a few.
How Much Can We Invest in US Stock?
Under the Liberalized Revenue Scheme (LRS), the RBI permits Indian investors to invest up to $2,50,000 (approximately Rs 1.9 crores) each year in the US stock market. This can be done without obtaining any special permission from the governing body.
If you are choosing to invest in the US, a crucial thing, which may seem very basic but is exceptionally vital, is that when investing in direct US stocks from India, you must consider the time difference between the two countries. The US stock market is open from 9:30 am to 4 pm EST, and 7 pm to 1:30 am IST. This means that you will need to be available during those hours to trade.
Charges while Investing in US Stock Market
First, it is crucial to understand the different fees and levies you will have to pay for the same. This is merely due to the fact that such costs may ultimately have a major impact on your gains. Some of the charges include the following:
- Tax collected at the source
- Capital gain and dividend Tax
- Bank charges
- Brokerage fees
- Foreign exchange rate
Things to Remember Before Investing in US Stocks Market
The following is a summary of considerations you should make if you’re considering beginning your investment career in the US stock market:
Liberalised Remittance Scheme:
Also referred to as LRS, Liberalised Remittance Scheme enables Indian citizens to freely transfer up to USD $250,000 for capital or current account activities, or a combination of both, per fiscal year. Any remittance in excess of this amount needs prior RBI approval.
USD-Rs Exchange Rate Fluctuations:
For Indian retail investors investing in US stocks, international exchange rates are less of a concern, but for traders, the costs and fluctuations can impact the returns.
Dividend Tax:
International investors must pay a dividend tax with a flat 30% tax rate. However, you can use this tax you paid in the US to reduce the taxes you owe in India.
Capital Gains:
Gains on investments held for less than two years will be categorized as short-term capital gains and taxed in accordance with the relevant tax brackets. Long-term capital gains provisions will be applied for holdings longer than two years, and the tax rate will be 20% with the advantage of indexation.
Transaction Charges:
Depending on the broker, maintenance fees, transaction fees, and other service costs may vary.
Pros and Cons of Investing in the US Stock Market from India
Like every coin has two sides, investing in the US stock market also comes with its own pros and cons. Some of them include the following:
Pros
- The US stock market is large and liquid, which means that there are always buyers and sellers available. This makes it easy to buy and sell stocks.
- The US stock market is home to some of the world’s most successful companies, so you can get in on the action by investing in their stocks. Some examples include Apple, Meta, Google, Microsoft, and Amazon!
- The US stock market is more regulated than the Indian stock market, so there is less chance of fraud.
- The US stock market is less volatile than the Indian one, so your investment will be less risky.
Cons
- The US stock market is less well-known to you than the Indian one, so you may not be as familiar with the listed companies.
- The US stock market is more expensive to trade in than the Indian stock market. This is because most brokers will charge a commission for each trade you make.
- The US stock market is subject to worldwide political and economic events, so your investment may be more volatile.
- Before investing in the US stock market from India, you must do your own research to ensure that it is the right decision for you.
- The time difference between India and the US can make it difficult to trade. You must be active during odd hours to invest while the market is open in the US.
