Take a minute to think about the biggest companies in various industries. Technology? Apple, Meta, Alphabet. Retail? Amazon, Walmart, Costco. Pharmaceuticals? Pfizer, Merck, AbbVie. Entertainment? Walt Disney, Netflix, Comcast.
Do you see the pattern here? All of these are American companies listed on the US stock market. And it’s only natural that you might want to invest in them to benefit from their market dominance and get great returns.
But how exactly can Indians invest in US stocks? And what kinds of rules govern overseas fund transfers for the purpose of buying stocks? Read on to find out.
Table of contents
1. How to invest in US stocks from India?
2. Guide to remittances for investing in US stocks
3. What is a remittance?
4. Types of remittances
5. Remittance methods
6. What is the Liberalised Remittance Scheme?
7. What was the recent remittance-related issue involving SBM India?
8. How is Appreciate better and safer?
9. How to carry out your first overseas transaction with Appreciate’s One-Click Remittance feature?
10. Remit with one-click ease!
11. Frequently asked questions
1. How to invest in US stocks from India?
You can invest in US stocks from India in two ways. The first is what might be called the “direct” way. This involves opening an overseas trading account with a broker or third-party platform, such as Appreciate the best trading app for US Stocks.
The second, “indirect” way involves investing in US stocks through mutual funds and Exchange-Traded Funds (ETFs). Once again, you can do so through platforms such as Appreciate. Alternatively, you can invest in Indian mutual funds and ETFs whose portfolios include US securities.
When you invest directly in US stocks, you have complete control over your portfolio, and greater flexibility when it comes to making changes to it. However, investing in US stocks comes with some additional complications due to the fact that such investments are considered to be ‘remittances’. Let’s understand what that means.
2. Guide to remittances for investing in US stocks
When you invest in Indian stocks, you simply transfer money from your bank account to your domestic stock broking account. This is enough for you to invest in your chosen stocks. But when you want to invest in US stocks, your money first needs to be converted to US dollars and then “remitted” (i.e., transferred) to the US.
This highly regulated process is monitored by the Reserve Bank of India (RBI) and governed by the Foreign Exchange Management Act (FEMA). Hence, to understand how Indians can invest in US stocks, it’s important to first understand what a remittance is, how it is different from ordinary payments or fund transfers, what kinds of remittance there are, and more.
3. What is a remittance?
Broadly speaking, a remittance is a sum of money sent from one party to another. However, the term is now usually used to refer to a transfer of money made by an individual in one country to an entity in another country. For instance, an Indian parent sending money to their child studying in the US would be considered a remittance under the FEMA.
So, what’s the difference between a remittance and a run-of-the-mill payment? While both involve a transfer of money, ‘remittance’ typically refers to a transfer of money internationally, while ‘payment’ is used to describe a transfer of money specifically against a bill or invoice for goods or services.
4. Types of remittances
There are two main kinds of remittances: inward and outward. Whether a remittance is inward or outward depends on your point of view. Let’s discuss both kinds from India’s point of view.
4.1 Inward remittances
An inward remittance is a transfer of money to India from another country. For instance, senior citizens in India receive money from their children working in a foreign country such as the US, Australia, South Africa, etc. through inward remittances. Donations, gifts, and funds for medical treatment are other potential examples of inward remittances.
4.2 Outward remittances
An outward remittance is a transfer of money from India to another country. For instance, parents pay the tuition fees for their children’s education in a foreign university through outward remittances. Some other examples of outward remittances include travel expenses for an overseas trip (once the traveller’s already at their destination) and investments in international securities such as US stocks.
Unfortunately, for the most part, making remittances is not as easy as carrying out UPI transfers (unless you’re using Appreciate, which offers a reliable one-click remittance feature).
Let’s take a look at some common methods for carrying out remittances.
5. Remittance methods
As of February 2023, there are three ways in which you can send a remittance from India to another country.
5.1 Bank transfer
Just like you transfer money domestically from your bank account to another using methods such as NEFT, IMPS, etc., you can also remit money overseas in a similar manner. Each major Indian bank has a specific process in place for international bank transfers on their net banking portal and mobile application for outward and inward remittances.
5.2 Wire transfer
A wire transfer might sound similar to a bank transfer, but it’s a very different process. Unlike a bank transfer, where the transaction happens directly between the domestic bank and the international bank, in a wire transfer, the transaction goes through a secure network for international electronic transfers, such as SWIFT. This method is preferred when large sums of money are involved, as it is considered to be more reliable, and is also often quicker. As a result, it might also cost more than a bank transfer.
5.3 Money transfer apps
Today, there are also several money transfer apps for quick and seamless money transfers from India to other countries. For instance, PayPal is known for enabling international money transfers and for being a global e-wallet. There are also many newer apps that enable low-cost remittances to and from India.
When it comes to investing in US stocks from India, you do not necessarily have to worry about figuring out which remittance method to use. When you use Appreciate to invest in the US stock market, all you need to do is click a button: Appreciate will then automatically transfer the money from your Indian bank account to your Appreciate account, and you can start making investments in Indian rupees.
6. What is the Liberalised Remittance Scheme?
The government of every country keeps close track of the amount of money being remitted inwards and outwards. That’s because such foreign exchange impacts the balance of payments, which is an account of all of a given country’s transactions with the world.
In India, the Liberalised Remittance Scheme (LRS) lays down various rules for remittances carried out by Indians. Under it, the RBI allows every Indian resident, including minors, to freely remit a certain amount of money every financial year.
6.1 When was the Liberalised Remittance Scheme introduced?
The LRS was introduced almost two decades ago, on 4 February 2004. Prior to the introduction of the LRS, remitting money abroad was a time-consuming and lengthy process.
6.2 What is the LRS limit?
When the LRS was first introduced, it limited the size of remittances to $25,000. Over time, this limit has been revised in light of changing macro- and micro-economic conditions. The last revision to this limit was in 2015, when it was increased to $250,000 per person. At the current (i.e. as of February 2023) exchange rate, that’s a little over ₹2 crores.
6.3 How does the LRS work?
You can freely remit money abroad for various purposes such as investing, travel, education, emigration, etc., as long as it does not exceed the LRS limit of $250,000. For total remittances exceeding this limit, prior permission from the RBI is required. There are no restrictions regarding the frequency or number of transactions made in a financial year as long as the amount does not exceed the limit. It is mandatory to provide your Permanent Account Number (PAN) for all transactions under the LRS.
6.4 Who can remit funds under the LRS?
The LRS is only meant for individuals who are Indian residents, including minors. Companies, partnership firms, trusts, and Hindu Undivided Families (HUFs), are excluded from the ambit of the LRS.
6.5 Remittance fees and charges
When you remit money under the LRS, there are certain fees and charges that you have to bear. You will probably be charged a commission, which will depend on the bank or platform you use. There is also a tax called ‘Tax Collected at Source’ (TCS) that is applicable for remittances of above ₹7 lakh. The TCS rate will change from the current 5% to 20% on 1 July 2023. Lastly, the Goods and Service Tax (GST) is also applicable to remittances. The GST rate can be anything between 1% to 5%, depending on the remittance amount.
The Indian government is quite stringent when it comes to enforcing remittance-related rules and regulations, particularly for outward remittances. As a result, major issues can arise if a bank or Non-Banking Financial Company (NBFC) fails to comply with such rules and regulations, as the example of the State Bank of Mauritius (SBM) India should make clear.
7. What was the recent remittance-related issue involving SBM India?
In January 2023, the RBI asked SBM India to stop all transactions under the LRS, citing “material supervisory concerns”. Why does this matter? SBM India, a private lender that had entered the country less than five years prior, used to carry out overseas investment transactions for more than 40 fintech firms in the country. These fintech firms included many leading neo-banks and foreign investment platforms.
When the RBI suspended SBM India from carrying out international transactions, all the fintech firms that had partnered with SBM faced a lot of problems. Customers of neo-banks that were dependent on SBM were unable to use their cards for foreign transactions; in addition, some investment platforms went offline, preventing investors from making fresh deposits in their US brokerage accounts.
Since timing matters when it comes to investments, users of these investment platforms may have lost certain opportunities during that time. While the RBI has partially lifted its restrictions on SBM now, there are still two outstanding issues. First, this partial relaxation will remain in effect only until 15 March 2023. Secondly, most of the fintech apps that have been affected are currently changing the process through which users can “charge” their US brokerage accounts. This, however, might result in higher charges and a process that is cumbersome and time-consuming.
8. How is Appreciate better and safer?
A lot of fintech startups opted for SBM over more established banks in India because larger, more reputable banks have a more rigorous screening process, one that requires a lot of approvals and time. But such a screening and onboarding process is essential because it ensures that the fintech firm’s products and processes are in line with RBI regulations, as is the case for Appreciate.
Along with its banking partners, Appreciate has also consulted the RBI at every stage of its development. So when you invest in the US stock market through Appreciate, you can rest assured that the app won’t stop working or disable transactions all of a sudden due to compliance issues. Its processes are completely in line with RBI and FEMA rules.
In addition to being more secure, the process of investing in global securities is also easier and more streamlined with Appreciate. Through Appreciate’s One-Click Remittance feature, investing in US securities is as quick and simple as investing in Indian stocks.
9. How to carry out your first overseas transaction with Appreciate’s One-Click Remittance feature?
To invest in US securities with Appreciate, there are three simple steps you need to follow:
Open an Appreciate account
Start by installing the Appreciate app on your phone. Then simply follow the instructions on each screen, and your account will be created!
Here’s a video guide to creating your Appreciate account:
You must also complete a video verification (VKYC) within 48 hours to activate your account.
Select a security and make a purchase
Once your bank account has been linked, you can easily buy and sell US securities on the Appreciate app.
After selecting a security and specifying the quantity you want to buy, all you have to do is press the ‘Place order’ button: Appreciate will automatically handle the remittance process behind the scenes!
Here’s a video guide that demonstrates this process:
With Appreciate, that’s how simple it is to carry out your first remittance for the purpose of investing in US securities. Moreover, Appreciate is committed to complete transparency, which means that before a remittance is carried out, you’ll always know the exact amount that will be remitted.
10. Remit with one-click ease!
To sum up, if you’re interested in investing in US securities (such as stocks and ETFs), you need to remit funds to the US under the LRS, which permits annual remittances of up to $250,000. Until recently, the remittance process was quite complicated and cumbersome; but now, with Appreciate, that process is as simple as a single click!
To enjoy the convenience of one-click remittances, and to save on LRS taxes before the new tax rules kick in on 1 July 2023, download the Appreciate app right away!
11. Frequently asked questions
11.1 How can Indians invest in US stocks?
The simplest way for Indians to invest in US stocks is to open a foreign trading account through a trusted investment platform that enables quick, easy, and low-cost investing in global markets.
11.2 Who is eligible to remit money under the LRS?
All Indian residents, including minors, are eligible to remit money under the LRS. This, however, only includes resident individuals. Companies, firms, trusts, etc. are not eligible to remit money under the LRS.
11.3 Are investments made using the LRS taxable?
Yes, investments made using the LRS are taxable if a profit is made on them. The tax rate charged depends on the type of investment and the period for which the investment is held. For instance, for investments in foreign stocks, profits made on stocks held for less than 24 months are considered short-term capital gains. These gains are added to your annual income and taxed as per your income tax slab rate. Profits made on stocks held for more than 24 months are considered long-term capital gains, which are taxed at 20%.
11.4 Is there a tax on LRS remittances?
When you remit more than ₹7 lakh under the LRS, ‘Tax Collected at Source’ (TCS) is levied. As per the 2023 Union Budget, from 1 July 2023 onwards, the TCS for LRS remittances will be increased to a flat rate of 20%, regardless of the amount remitted. However, this is adjustable against your tax liability when you file income tax returns.
11.5 Why did the RBI bar SBM India from carrying out LRS transactions?
The RBI was concerned that some of SBM India’s fintech partners were not following the required procedures for overseas money transfers. Hence, the RBI asked SBM India to stop all LRS transactions until these concerns were addressed.
