With advancements in technology and the availability of online brokerage platforms, it has become increasingly accessible for Indian investors to engage in international stock investing & trading.
Investing in US stocks can be an appealing opportunity for Indian individuals looking to diversify their investment portfolio and participate in the global financial markets. This guide will explore the essential steps involved in investing in US stocks from India.
How Does International (or US) Investing Work?
Before understanding international investing, you need to understand how does domestic investing work? Here is a breakdown of the process:
- First, you create an account with investing platform & complete KYC. You may get a Demat or investing account.
- You transfer funds to a “Client Bank Account” held by investing platforms in partnership with various banks for secure fund transfers and custody on behalf of their customers.
- You purchase investments & the corresponding amount is debited from your account & the ownership of the assets is reflected in your investing account.
- You can sell investments of your choice. The resulting amount will be credited to your “Client Bank Account,” from which you can withdraw the funds.
A similar process is followed when you invest in International or USA stocks. You open an overseas trading or brokerage account, transfer the funds, and start investing in US stocks or other investment instruments.
Many domestic brokers (investing platforms) tie-up with stockbrokers in the US and help you open an overseas trading account with any such broker. Alternatively, you can also directly open an overseas brokerage account with a foreign broker based in India.
Note- It's important to be aware that transferring funds to the USA may attract various fees and charges.
Platforms For Investing In US Stocks
|Platform||Partner US broker||Account Opening|
|Groww||ViewTrade||2 to 7 Days|
Foreign Brokers Based In India
Some foreign brokers based in India are Interactive Brokers, Charles Schwab, TD Ameritrade etc. The account opening process may take 1 to 3 days.
How To Invest In US Stocks from India
Investors can invest in US Stocks from India through various ways discussed below.
1. Direct Investments
If you want to directly invest in US stocks, open an overseas brokerage account, transfer the funds & start investing.
2. Indirect Investments
Mutual Funds: Various fund houses in India offer “International mutual funds” that target the US market. You can invest in one of them without having to worry about an overseas brokerage account.
ETFs: You can also leverage ETFs (Exchange-traded funds) to invest in US Stocks. You can either purchase US ETFs directly via domestic or international brokers or purchase an Indian ETF of international indices.
3. NSE IFSC Exchange
NSE IFSC (International Financial Service Centre) Exchange is a wholly-owned subsidiary of the National Stock Exchange (NSE) that operates out of GIFT City, Gandhinagar, Gujarat.
It acts as an international stock exchange to help NRIs and foreign investors invest in Indian equities. Also, Indian investors can also purchase USA stocks listed on NSE IFSC Exchange.
At present investors can invest in 50 US stocks listed on NSE IFSC. These stocks are listed in the form of American Depositary Receipts (ADRs), which represent ownership of a foreign stock.
Taxation on US Investing
Investors must also be aware of the applicable taxes on US investing. When an investor invests in US stock, he may be subject to TCS, Capital Gains and Dividend Taxes.
A. Tax Collected At Source (TCS)
TCS is charged when you remit money for investing in foreign stocks & securities. Earlier, It was charged at the rate of 5% on remittances above ₹7 Lakhs. But Starting from July 1, it will be charged at the rate of 20% without any upper limits.
For example, if you remit INR 5 lakhs, a TCS of INR 1 lakh will be deducted. However, it is to be noted that you can claim it as an income tax refund.
B. Capital Gains Tax
Non-resident aliens (NRAs) are not generally subject to US capital gains tax (unless they reside in the US). However, when an Indian investor sells US stocks, they are liable to pay capital gains tax in India as follows:
- Short-term capital gains (holding period is less than 36 months) are taxed as per the investor’s income tax slab.
- Long-term capital gains (holding period is more than 36 months) are taxed at a flat rate of 20%.
C. Dividend Tax
Indian investors are subject to a flat tax rate of 25% when they receive dividends from US companies. This tax is withheld by the US company.
However, investors can avail themselves of a foreign tax credit on their Indian tax return to offset this tax and mitigate the risk of double taxation.
Pros Of Investing In US Stocks
Investing in US stocks may offer many advantages discussed below:
- Fractional Shares: You don’t have to purchase US shares in whole units rather you can purchase fractions of shares.
- Geographical Diversification: Investors who may want geographical diversification can invest in US stocks.
- Better Returns: Historically, US stock markets have shown strong long-term growth with better returns compared to some other markets.
- Currency Gains: If the value of the US dollar strengthens against the Indian Rupee, it can lead to currency gains.
Cons Of Investing In US Stocks
These might be some disadvantages of Investing in US stocks:
- Currency Exchange Rate Risk: Investing in US stocks involves exposure to currency exchange rate fluctuations.
- Transfer and Processing Time: Transferring funds to invest in US stocks may involve additional transfer and processing time.
- Time Zone Differences: US market timing are different than Indian market hours which can also affect the ability to react quickly to market news and events.
❔ Related Potential Doubts
What documents are needed to open an overseas brokerage or trading account?
The general requirements are proof of identity, address, PAN number, bank details, tax residency certificate etc. Moreover, some brokers may also require additional documents.
Is my money safe with an overseas brokerage firm in the US?
US brokerage firms typically offer account protection measures such as Securities Investor Protection Corporation (SIPC) coverage. However, SIPC provides limited protection for customer assets held by the brokerage firm.
Is my personal information safe?
Brokers operating in the US are subject to regulatory oversight by organizations such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
What are some charges associated with fund transfers to the US?
The following charges may or may not be applied based on different factors:
1. Fee Charged By Sending Bank
2. Fee Charged By Receiving Bank
3. Foreign Exchange Fee
5. TCS (Tax Collected At Source).
How much money can I transfer to the US annually?
The transfer limit is USD 250,000 (approx. INR 2,04,50,250) per person under LRS (Liberalized Remittance Scheme). This limit applies to both personal and non-personal remittances. This is for all types of overseas transfers such as remittances for education, medical or business purposes.
What factors should I consider while choosing an investment platform for US stock investing?
Investors must consider the following factors:
1. Account Opening Charges
2. Minimum Deposit Amount
3. Fund Transfer Charges
4. Brokerage Charges
5. Withdrawal Charges
6. Foreign Exchange Fee
7. Additional Taxes
8. User Interface & Customer Support
9. Research & Analysis Tools.