It’s no unknown fact that NYSE & NASDAQ are two of the world’s biggest stock exchanges. But do you know both these stock exchanges are thrice the size of the 3rd placed Shanghai Stock Exchange? That is the magnitude of US companies and people’s trust in them. Thus, investing in US companies is a common piece of advice we often hear regarding portfolio diversification.
Knowing the dominance of US stock exchanges in the global investment scene, you must be wondering how to invest in US stock market from India. Thanks to the internet revolution, investing in US firms has never been this easy. Just follow a few simple steps, and bam! You’ll become a direct investor in the US stock exchange. Which steps, you ask? Read till the end to know.
Why US Stock Market Reigns Superior
There’s no denying the fact that the US stock market is miles ahead of its competition. US stocks hold around 56% of the total market capital available in global markets. From revolutionary tech giants to enormous consumer staples firms, all are listed on the US stock exchange. But what makes the US exchanges the home to all the leading corporations? Let’s learn with quick pointers.
- The US stock market offers stability like no other market. It is one of the least volatile stock markets that has consistently performed since 1792.
- Transparency has never been an issue for investors of the US stock market. Honesty and transparency have been two key pillars of investors’ trust in US companies.
- The US stock market is the most liquid stock market in the world, with huge transaction volume and market capitalisation. For comparison, NYSE’s share trading volume is 7.5 times that of the London stock exchange
- With options to choose from more than 5000 companies, the US stock market offers diversification like no other market. You can invest in the rising sectors’ leaders, an opportunity that is often missing in other parts of the world.
How Much Can Indians Invest in the US Stock Market?
Although all resident Indians can legally invest in the US stock market, there is an upper cap on investment each year. According to RBI’s Liberalised Remittance Scheme, Indians can invest upto $2,50,000 in a financial year in foreign markets, including that of the US.
It translates to almost Rs 2 crores a year. Individual investors can invest this amount freely without any restriction. However, you can be subject to double taxation as the dividends are taxed in the US while the capital gains are taxed in India.
Routes to Invest in US Stocks from India
There’s no shortage of routes to invest in US stocks from India for the interested people. In this section, we’ll explain the four popular methods of investing in US companies. Let’s explain them one by one.
1. Direct Purchase of US Stocks
Indians can directly purchase stocks of American businesses with the help of an international brokerage firm. Direct investing reaps the biggest rewards by enabling an investor’s portfolio to grow at the same pace of the invested stocks. Apart from a few minor charges, you get the benefit of fully appreciating your wealth.
Stockal has been a leading brokerage house that offers Indians the opportunity to be a part of the US growth story. With Stockal, investing in US stocks is a child’s play, thanks to its user-friendly UI and timely stock updates.
2. Mutual Funds
Mutual funds focused on US enterprises offer an indirect route to invest in US companies. While direct investment through stocks requires good knowledge and time resources in studying the balance sheets, mutual funds shift the stock research responsibilities to expert fund managers. However, mutual fund houses take a cut of profit as an expense ratio for their services.
Stockal allows you to invest in curated mutual funds primarily focused on US enterprises. At Stockal, you have the exposure to hand-picked funds with fabulous historic return figures. With Stockal, you can directly invest in mutual funds from top-tier US fund houses.
3. Exchange Traded Funds
Exchange Traded Funds or ETFs are a cost-effective way to invest in a basket of stocks. ETFs, due to their structure, can be termed as low-cost mutual funds that are traded on stock exchanges. There are many ETFs listed in Indian exchanges which are invested in the US market. ETFs carry tiny fees compared to mutual funds. However, ETFs are rigged with liquidity issues which can be a pain point while selling them.
If ETFs are your preferred way to invest in US stocks from India, we suggest going with Stockal. In Stockal, you’ll experience no crunch in liquidity. As Stockal serves more than 2,80,000 users, you’ll always find someone to buy your ETF while selling.
4. Curated Stacks
Stacks are a newer concept in stock market investing. They are pre-configured baskets of stocks developed by asset management firms and hedge funds. Stacks are usually well-diversified and managed by experts with significantly greater knowledge in investing than a typical DIY investor.
Stockal gives you access to 22 US-focused stacks of ready-made portfolios. Some of the stacks available at Stockal have fetched more than 25% CAGR return for the past three years. Getting this kind of return is highly unlikely for any novice investor through direct investment in stocks.
Important Things to Remember Before Investing in US Stocks
US stock market investing can be daunting if you aren’t familiar with the laws and legalities. So before you jump into the US stock market, ask yourself the following questions.
What are the tax implications?
Thanks to the Double Tax Avoidance Agreement (DTAA) between India and the US, your hard-earned money will be taxed only once. Dividends from US stock market investment will be taxed in the US at a uniform rate of 25%. While LTCG for stocks held more than 2 years would be taxed in India at a rate of 20% plus applicable surcharges.
Is there any additional charge?
When you’re finalizing a platform to invest in US stocks from India, you should always look for additional and hidden charges. Usually, there are a few types of charges: brokerage, account maintenance, and bank. These charges can add up to a sizable amount, so compare the charges of different brokerage firms before going with one.
What is Foreign Exchange Consideration?
When you’re investing in a foreign land, you’re juggling between two currencies. In case of US stock market investment from India, Dollar and Rupee are the two currencies you’ll be dealing with. Thus, the fluctuating nature of the foreign exchange rate can impact your return. However, as you’re investing in Dollar terms, it can appreciate in value if the Rupee weakens against Dollar.
As we’re at the fag end of our blog, hopefully you got the answer of how to invest in the US stock market from India. Investing in the US stock market can feel overwhelming if you’re new to stock market investment. There are lots of terminologies, formalities and processes involved when you are investing in a foreign land.
However, you can overcome all the barriers to US stock market investment with the help of Stockal. Stockal takes care of all the local and international compliance facilitation, cross-border fund transfer and other formalities. Headquartered in New York with an office in Bengaluru, Stockal is truly breaking down the barriers of US stock investment for Indians.