Are you considering the benefits of investing in US stocks from India? Global economic integration is progressing. This makes it increasingly popular to diversify your investment portfolio by including international markets like the United States.
This strategy can offer numerous benefits, such as the potential for attractive returns and reduced risk through geographic and economic diversification.
The US stock market, known for its massive scale and the presence of global corporate giants, offers a unique opportunity for portfolio diversification. As of January 1st, 2024, the total market capitalisation of the US stock market was approximately $50.8 trillion, making it one of the largest in the world. In comparison, the market capitalisation of the Indian stock market is around $4.6 trillion.
If you’re looking to expand your investment strategy to include international stocks, understanding the process and benefits of investing in US stocks from India is crucial. Keep reading to find out how you can access one of the world’s largest markets, and boost your investment returns through diversification.
How to Invest in US Stocks
Here’s how you can start investing directly in US stocks or choose indirect investment methods such as mutual funds and ETFs.
Direct Investment Options
1. Investing Apps
Apps like Appreciate, allow you to easily buy US stocks or ETFs from your smartphone. The Appreciate app allows you to start investing in US stocks and ETFs with as little as ₹1. This makes it accessible for individuals who wish to invest small amounts and potentially build up their investments over time.
Benefits:
Here are some distinctive benefits:
- Appreciate provides real-time access to the US stock market, which is crucial due to the time difference between India and the US. Investors can react quickly to market changes during US trading hours, directly from their smartphones.
- Apps frequently include educational resources that help new investors understand the complexities of US stock markets. These can range from tutorial videos to articles on investment strategies.
- You can access advanced features such as fraction – which allows you to invest in fractional shares, starting from as low as ₹1. Appreciate also offers pro features like advanced analytics and insights.
- Appreciate handles INR to USD conversions seamlessly, often providing more competitive rates than traditional banks. This reduces the hassle of managing multiple currency accounts.
2. Overseas Trading Account with a Foreign Broker
You can open an account directly with a US-based broker like Charles Schwab or TD Ameritrade. This option allows you direct access to the US stock markets, enabling you to buy stocks like Apple, Amazon, or Google. To fund your investment, you’ll likely use a SWIFT payment from your Indian bank account.
There are typically two main types of costs involved: currency conversion fees and wire transfer fees.
Currency Conversion Fees: These fees arise because your investment in US stocks needs to be made in USD, so your INR will be converted to USD. The rate of conversion will include a markup over the mid-market exchange rate, which is how banks make a profit on the conversion. Currency conversion fees for such investments can range from 3% to 5% of the transaction amount, depending on the financial institution and the specific services used.
Wire Transfer Fees: Banks charge a fee for the actual wire transfer. This fee can vary significantly depending on the bank but typically ranges from ₹500 to ₹2,000 per transaction. Some banks offer reduced fees or promotions for online transfers or for premium account holders. It’s also important to note that the timing of these transfers and the associated rates can impact the total INR you spend, as exchange rates can fluctuate frequently.
Drawbacks:
- Some US brokers require a substantial minimum deposit, which can be restrictive for average investors. For instance, brokers like Charles Schwab or TD Ameritrade might ask for a minimum deposit of $25,000 to start trading.
- Earnings through US-based brokers are subject to US tax laws as well as Indian tax regulations. This can complicate tax filings, requiring the investor to possibly file tax returns in both countries depending on the circumstance.
3. Overseas Trading Account with a Domestic Broker
Alternatively, you can open an overseas trading account with an Indian broker that offers international trading
These brokers partner with US-based brokers and offer a platform for investing in US stocks. They provide added conveniences, such as handling currency conversions and ensuring regulatory compliance on your behalf.
Generally, there is no fixed minimum investment amount required for investing in US stocks through these platforms. The brokerage fees might be higher when using these domestic platforms compared to directly using US brokers. This is due to the additional services they provide, such as ease of transaction and regulatory compliance.
On average, US online discount brokers charge around $5 to $15 per trade, but this can vary widely. Some brokers offer zero-commission trades, although they may recoup costs through other fees.
Drawbacks:
- While convenient, domestic brokers might offer limited access to the full range of US stocks. For example, they may only provide access to major indices and not to smaller stocks or certain sectors.
- When converting INR to USD and vice versa, domestic brokers often add a margin to the exchange rate, which can reduce the overall returns from investments.
- The investor’s experience and the range of available features heavily depend on the broker’s platform capabilities, which might not always align with the investor’s needs.
Indirect Investment Options
1. Mutual Funds
You can invest in US markets by purchasing units of mutual funds that invest in US equities. These funds are managed by professionals who allocate investments across various US stocks.
It’s a less hands-on approach to investing in US stocks and is ideal for those who prefer not to manage daily trading activities. Here are some examples of mutual funds that Indian investors might consider for investing in US stocks:
- Franklin India Feeder – Franklin US Opportunities Fund: This fund primarily invests in US companies through the Franklin US Opportunities Fund, aiming for growth by investing in US-based companies across a range of sectors and company sizes.
- ICICI Prudential US Bluechip Equity Fund: The fund invests in blue chip companies in the US, which are large, well-established companies known for their reliability and ability to operate profitably in various economic conditions.
- DSP US Flexible Equity Fund: This fund aims to provide exposure to US stocks across various sectors and market caps, adapting its holdings based on current market conditions to maximise returns.
These funds allow Indian investors to participate in major US companies’ growth without directly trading stocks on US exchanges.
2. Exchange-Traded Funds (ETFs)
ETFs are similar to mutual funds but are traded on stock exchanges much like individual stocks. Here are some prominent ETFs that focus on US equities:
- SPDR S&P 500 ETF Trust (SPY): This is one of the most well-known ETFs globally, designed to track the S&P 500 Index, which comprises 500 of the largest US companies. As of February 2024, it had assets totalling about $502 billion. This size reflects its popularity among investors looking to gain broad exposure to the US stock markets.
- Vanguard Total Stock Market ETF (VTI): It covers the entire US equity market, including small, mid, and large-cap growth and value stocks.
- Technology Select Sector SPDR Fund (XLK): This fund provides targeted exposure to technology and telecom sectors within the S&P 500.
| Did you know? The US stock market is the largest in the world, representing about 60% of the global stock market as of January 2023. It offers Indian investors the opportunity to invest in major global tech companies such as Alphabet and Meta. |
Things to Know Before Investing in US Stocks
Before you start investing in US stocks from India, there are several factors you should consider to ensure your investment aligns with your financial goals and risk tolerance.
1. Stability Due to Geographical Diversification
Investing in US stocks provides geographical diversification, which can help stabilise your investment portfolio. Different markets and regions react differently to economic events.
For example, in late 2023, a significant divergence was observed between the Indian and US stock markets, largely influenced by India’s economic challenges and US market conditions.
Specifically, on October 4, 2023, India’s stock indices such as the S&P BSE Sensex experienced a sharp decline, dropping by over 1.5% in a single day. This was largely due to concerns over rising US interest rates impacting global markets, coupled with internal economic strains.
During the same period, US markets like the Dow Jones Industrial Average (DJIA) and the S&P 500 demonstrated resilience. On the same day, the DJIA was up by 230.1 points, a 0.61% increase, and the S&P 500 similarly rose by 29.7 points, equating to a 0.60% gain.
These figures show how geographical diversification can impact market stability, with US markets benefiting from positive economic data that contrasted with the pressures facing Indian stocks.
2. Importance of Taxation
Understanding the taxation laws applicable to foreign investments is crucial. Here’s a breakdown of the main taxes applicable to US stock investments for Indian residents:
| Type of Tax | Tax Rate | Description |
| Dividend Tax | 25% | Taxed in the US at this rate; eligible for credit under the Double Tax Avoidance Agreement (DTAA) against Indian taxes. |
| Capital Gains Tax | 0% (applies only to specific income levels and holding periods) | Individuals who stay in the US for less than 183 days in a year are not subject to US capital gains tax; staying longer may trigger tax obligations. |
| Long-term Capital Gain | 20% (in India) | Applicable if US stocks are held for more than two years. Taxed at 20% in India. |
| Short-term Capital Gain | According to the income tax slab (in India) | For stocks held less than two years, added to income and taxed at the respective income tax slab rates in India. |
The taxation on US stock investments by Indian residents is influenced by both US and Indian tax laws, as well as the DTAA between the two countries. Always consider consulting with a tax advisor to understand the latest and most relevant tax implications for your specific situation.
3. Fluctuation in the Exchange Rate
The exchange rate between the Indian Rupee and the US Dollar can impact your investment return. A strengthening dollar against the rupee can enhance returns when converting back to INR, while a weakening dollar can reduce them.
Monitoring currency trends can help in making informed decisions about the timing of your investments and withdrawals.
4. Life Goals
Your investment decisions should align with your life goals, whether it’s saving for retirement, buying a home, or funding education. US stocks can be part of a broader investment strategy that supports your long-term financial aspirations.
Let’s say you want to save ₹65 lakhs for your child’s education in 18 years by investing in US stocks.
- Monthly Contributions: Invest ₹15,000 each month.
- Expected Return: Aim for an average annual return of 7% from a diversified US stock portfolio.
Over 18 years, your initial amount and regular investments, growing annually, should help you reach your ₹65 lakh goal.
How to Invest in US Stocks on Appreciate
Investing in US stocks through Appreciate allows you access to international markets. Here’s how to get started:
1. Create Your Appreciate Account
Start by registering on the Appreciate platform. You’ll need to provide some personal details such as your name, email, and phone number, along with KYC documents like your PAN card and proof of address. Once your documents are verified, your account will be ready for transactions.
2. Transfer Money to Your Account
Link your bank account to transfer funds to your Appreciate account. You can use net banking. Remember to consider the foreign exchange rates and transfer fees, as these will impact the total amount available for investment. Appreciate offers the best forex rates for your convenience.
3. Select the Stock You Want to Invest In
Choose from a wide range of US stocks available on Appreciate. Use the platform’s tools to research stocks based on their financial health, performance history, and current market trends.
Make sure to select stocks from sectors you are familiar with or those that show growth potential.
4. Execute Buy Order
Place your buy order through the trading interface. You can opt for a market order to purchase at the current price or a limit order to specify the maximum price you’re willing to pay.
Your order will be executed during US stock market hours, and you will be notified once the transaction is completed.
By following these steps, you can manage your investments through the Appreciate app and diversify your portfolio internationally.
Final Thoughts
Investing in US stocks from India is a viable option to diversify your investment portfolio and access a broad array of growth opportunities. With platforms like Appreciate, the process is streamlined, making international investing accessible even for beginners.
Ready to get started? Download the Appreciate app today and take the first step towards global investment opportunities.
FAQs
1. How Much Can I Invest in US Stocks?
Under the Liberalised Remittance Scheme (LRS), Indians can invest up to $250,000 per financial year in US stocks.
2. What documents are required for Investing in US Stocks from India?
You’ll need your PAN card, proof of address, and sometimes a bank statement or income proof to invest in US stocks.
3. Can NRIs invest in US stocks?
Yes, Non-Resident Indians (NRIs) can invest in US stocks, often having the same opportunities as resident Indians.
4. Can Indians Invest in the US Stock Market?
Yes, Indians can legally invest in the US stock market using platforms like Appreciate which simplifies the process.
5. Is it Legal to Invest in US Stocks from India?
Yes, it is legal for Indians to invest in US stocks, following the guidelines set by the RBI under the LRS.
6. Can Indians Invest in Nasdaq from India?
Yes, Indians can invest in stocks listed on the Nasdaq and other US stock exchanges.
7. What are the trading hours of the US stock market for Indians?
The US stock market operates from 9:30 AM to 4:00 PM Eastern Time, which is approximately 7:00 PM to 1:30 AM Indian Standard Time.
