Diversifying your portfolio by investing in foreign stocks can help you minimise the downside risk of the domestic market while providing benefits of growth in foreign markets. That being said, the US is one of the most popular markets for foreign investments.
If you’ve already dipped your hands in Indian stocks, then getting started with US stocks shouldn’t be too hard. Here’s a walkthrough of how to trade in the US stock market from India.
There are two ways you can invest - directly or indirectly
One way of investing in US stocks is by opening an overseas trading account with an overseas or domestic broker. However, ensure you do your diligence, like understanding the features, charges and fees, before picking the best broker to invest in US stocks from India.
Opening an overseas account with a domestic broker
Many Indian brokers have tie-ups with brokers in the US. Opening an account with them is similar to any other account opening process where you’ll have to submit certain documents as proof and get started with your trading journey.
However, there may be some restrictions involved, like a limited number of trades per day or a limited number of stocks you can buy. Also, with the currency conversion in place, the cost of trading, brokerage charges, and account maintenance can be significantly higher.
Opening an overseas account with a foreign broker
You can also open trading accounts with foreign brokers who have an Indian presence. Again, the charges and fees will vary from broker to broker, so get a grasp on the cost before you pick the best broker to invest in US stocks from India.
If directly investing is not your cup of tea, you can still get a piece of US stocks indirectly through mutual funds and Exchange Traded Funds.
Arguably the most popular investment vehicle right now, you can pick different types of funds that have exposure to US stocks and invest in SIP or lumpsum mode. You can also invest in Indian mutual funds that invest in US stocks through the Fi Money app.
Exchange Traded Funds or ETFs
ETFs contain a pool of assets similar to mutual funds and can be traded in the stock market, giving you the best of both worlds. You can invest directly in US ETFs through brokers or invest in Indian ETFs that have US indices.
We’ve covered “how to invest in the US stock market from India”, now, the next question would naturally be how much can you invest in the US stock market?
Initially, investing in US stocks was a cumbersome process that required getting special permission from the RBI. But with the Liberalised Remittance Scheme (LRS) guidelines set by the central bank, the process became easy, and the maximum amount you can invest is capped at $250,000 per year without any special permissions.
For all transactions above ₹7 lakh, a 5% tax collected at source is charged on the amount above ₹7 lakh and not the total amount. This amount can be claimed as a refund when you file your tax return.
Dividends are taxed at 25% for Indian citizens investing in US stocks. But with the Double Taxation Avoidance Agreement (DTAA), you can avoid paying this tax again in India. However, you will have to pay tax on the capital gains in India since it is not chargeable in the US.
Click here for a more detailed explanation of the taxes involved.
Brokerage firms charge fees for buying and selling stocks and may also charge for foreign exchange currency and transfer fees.
With liberal investment regulations to invest in US stocks, this can be a good opportunity to expand and diversify your portfolio. Moreover, the currency exchange rates can work to your advantage and help you claim higher returns.
Learn more about how to get started with US Stocks through this short video: https://www.youtube.com/shorts/VywxVwa-9nM
There is an array of websites and apps to choose from to invest in US stocks. It can be either domestic broker sites with tie-ups with US markets or US brokers with a presence in India. Each of these has its own set of features and benefits suited to various investors. Hence, it is up to you to figure out which of these works best to your taste.
OTC stocks are, by nature, not listed on the exchanges, so it’s not possible to buy them from regular trading accounts. These stocks comprise many small and mid-sized firms. Normally, market makers or specialised brokers keep a separate list of such stocks and purchases can be made directly from them.
Yes, you can. If you’re in India, then you can open a demat and trading account with Indian brokers who have access to US stocks or US brokers who have a presence in India.