How to invest in US Stocks from India in 2024?

How to invest in US Stocks from India? What are the various ways to invest in US Stocks? What is the taxation of investing in US Stocks? Is it worth investing in US Stocks?

Why people are eager to invest in USA Stocks?

# The primary purpose for many investors is to diversify their investments globally. However, many forget one important aspect here. Globally does not mean the USA right? But for them, the USA is a major force that drives the economy and hence is eager to diversify.

# Weakening rupee against the dollar. If you look back at the dollar price against the rupee in 2011, it was at around Rs.46. Now in 2022, it is almost around Rs.80. It is one more added advantage for many to look for US stocks. Let us look at last 10 years data to understand the growth of dollar against rupee.

Historical Dollar Vs Rupee Chart 2022
Source – Investing.com

# Few are fond of investing in those stocks whose products you are using like Google, Meta, Microsoft or Apple. This forces them to believe a great pleasure 🙂

How to invest in US Stocks from India?

Let us move on and understand how to invest in US stocks from India. But before proceeding further first understand certain rules like FEMA (Foreign Exchange Management Act under which all cross-border transactions and payments made by Resident Indians (RI) fall) and LRS (Liberalised Remittance Scheme).

LRS falls within the ambit of FEMA. Under LRS, resident individuals, including minors, are to remit up to US $2,50,000 (Approximately around Rs.2 Cr if we consider dollar value against the rupee at Rs.80) per person per financial year for any permitted current or capital account transactions. Any investment over and above the prescribed limit requires RBI approval.

Transactions can either belong to a Current account – which includes expenses or a Capital account – which includes investments. There are no restrictions on the frequency of transactions in a year.

There are basically five ways to invest in international stocks or in US stocks.

How to invest in US Stocks from India

Now let us look into these options one by one.

# US Stock Brokers

Many Indian apps or platforms like INDMoney or Vested promote in such a way that the only way to invest in US stocks is through them only. However, there are few US brokers who offer you to open an account and invest directly in US stocks.

As of now, few brokers whom I know are TD Ameritrade, Charles Schwab, Interactive Brokers, or the new age ones like Webull. If you are willing to invest outside the US, then you can cross-check with Saxo, Degiro, and HSBC Singapore.

These brokers allow you to invest in a full range of listed ETFs, stocks, and other products, including crypto and derivatives.

Note that you can’t invest in derivative segments under LRS. However, if you have a source of money that is non-Indian, then you can use that money to trade in the derivative segment.

Stocks are directly held in your name as you are directly holding the account with US brokers. But account opening with few brokers may be cumbersome. Hence, check first the options and procedures they follow.

Fund transfer to invest is through WIRE transfer. Customer service depends on whom you are choosing as a broker. Full-service brokers like TD Ameritrade and Schwab offer both telephonic and other online ways to connect with them. However, brokers like Webull would not offer telephonic support.

# Indian Apps

There are apps which are very popular among many Indian youths (especially) like INDMoney or Vested. Typically they act as front-end entry for API-based brokers. Take for example, INDMoeny tied with API based brokers like Drivewealth and Alpaca. But Vested tied up with Drivewealth.

HDFC Securities works like this. HDFC Securities acts as an introducing broker, and then you are off to Stockcal, which curates portfolios for you. Then you have Drivewealth in the background as a broker.

Kristal.AI has a similar approach where it curates international ETFs for you and uses Saxo Singapore as the broker.

These platforms are simple and easy to use for Indian investors. In fact, you can buy fractional shares. This means a small portion of a stock rather than holding a minimum of 1 stock.

Here also, fund transfer happens through WIRE. Investments in US equities must be made in USD. You must wire (remit) USD to Vested’s partner bank in the US to fund your account. In order to do this, you must fill out an LRS form (it’s called the A2 form) and submit it to your bank.

Please note that there are costs involved in the fund transfer process. These costs vary according to the bank you use. For example, there is a fixed cost of between Rs.500 – 1500 per fund transfer.

Fund withdrawal also happens through WIRE transfer after your request. Usually, it will take around 3-5 days. Remitting bank will charge a fee for the transfer.

There are certain limited offerings with these apps. Hence, cross-check with them before you explore the idea of investing through these apps.

# Indian Brokers

ICICIDirect or Motilal Oswal has a tie-up with a foreign brokerage house. ICICI Direct has a tie-up with Interactive Brokers (IBKR). The only advantage is that fund transfer is for you easy as you just have to transfer to your Indian broker. However, the cost involved is very high. For example, refer to the below tweet.

# NSE and BSE

Both NSE and BSE stock markets also offer you to invest from their platforms NSE- IFSC, and India-INX respectively. They both operate in GIFT City IFSC.

NSE has created unsecured depository receipts in GIFT City, while BSE-owned India INX is simply acting as an intermediary platform (rather than an exchange). Investors in India INX transfer money straight from India to the US or other foreign countries without it ever touching the IFSC itself.

Investors can buy through the direct share buying facilitator route on the BSE IFSC (India INX), while the NSE IFSC uses the depositary receipt route.

BSE IFSC allows investors to buy foreign shares directly from more than 130 stock exchanges across more than 31 countries, while NSE IFSC currently only has US stock investing options. The NSE US stock DRs will be held in Indian demat (opened separately with an IFSC broker) and the BSE IFSC stocks will be held with the foreign custodian or broker.

In terms of charges, BSE India INX involves forex charges and broker commissions if any. However, in terms of NSE IFSC, it involves forex charges, brokerage, Demat charges, receipt creation, and extinguishing charges.

In BSE platform, you will hold stocks, bonds, or ETFs. However, in the NSE platform, you are holding unsecured depository receipts.

BSE-owned India INX on the other hand has a tie-up with Interactive Brokers, a US broker. Its clients get to access the entire universe of stocks and ETFs listed in the US and other markets, rather than just the top 50.

It has also tied up with 75 brokers to allow access to their customers. This mode is similar to what we discussed about the fintech such as Stock, Vested Finance, Globalise, and Winesta are pursuing. India INX, in this case, is simply acting as a go-between and not as an exchange.

In the NSE platform, your money does not directly leave India and your trades happen in GIFT city. GIFT city is legally considered a separate jurisdiction but it is ultimately subject to India’s Constitution and Parliament. The receipts are issued against shares held in the US, but this, in a sense, happens at the back end. If you do not want to invest in products beyond the top US stocks, the NSE model may be sufficient for you.

In BSE module, you are transferring money outside India and run the risk of problems in the destination country where you are investing.

Hence, both platforms have their own pros and cons. You have to check your requirement and then take a call accordingly.

# Indian Mutual Funds

The simplest form of investment to invest in US stocks from India is through ETFs and Mutual Funds offered by Indian Mutual Fund Companies.

No additional paperwork no LRS headache for you. Here, you will also get options like based on countries, emerging markets, sectors or geographies.

Let me share the list of international mutual funds available in India as of 2nd November 2022.

Here, you noticed that few are ETFs, few are FOFs and few are feeder funds. The majority of these passive funds have huge tracking errors. Hence, you have to think twice before blindly investing in these passive funds.

Cost of investing in the International Equity Market

When I say cost, it does not mean just the expense ratio, brokerage or some bank charges. Instead all the transaction costs and also the taxation part.

There are various charges involved.

# Remittance Charges and brokerage charges

It ranges from zero to Rs.1,000+GST. If the platform you are using is tied up with any banks in India, then there will be fixed charges. For example, Vested has a tie-up with the Bank of Mauritius, which helps as you pay only a 1.2% remittance charge.

If your platform is not tied up with any bank, then you end up paying Rs. 1000 + GST (Fixed) to a minimum of 0.8 % of the transferred value as a remittance charge.

Each time you invest, you end up with this charge. It is a huge differentiator which many ignore. If you really wish to reduce the cost, then you have to transfer the lump sum amount rather than adopting the monthly investment approach.

Also, cross-check the brokers charging you. If you are buying direct stocks, then few may charge you on buying and selling also.

# Tax Collected at Source (TCS)

5% TCS will be applicable on all remittances above Rs.7 lakh under RBI’s Liberalized Remittance Scheme (LRS). However, if your remittance is below Rs.7 lakh, then there is no such TCS.

You will get the TCS certificate and while filing your ITR you have to show this and claim a refund (if you are eligible).

# Taxation of International Stocks in India

In case you hold the stocks for more than 24 months, then it is considered as long term and less than 24 months is considered as short-term for taxation purposes.

The current LTCG rate is 20% with indexation benefits. However, STCG is taxed as per your tax slab.

Income from investments received as dividend is taxable in the US at a flat rate of 25%. For example, If a company declares 100$ as a dividend, an investor receives 75$, and 25$ will be withheld as an amount of tax. In India, the dividend income is taxed as per your income tax slab under the head of “Income from other sources”. However, as there is a Double Taxation Avoidance Agreement (DTAA) with the USA, you can use the tax already paid in the US as a foreign tax credit to reduce your tax liability in India.

Along with all these taxes, you have to bear the estate tax if the account holder dies. In the US, Estate tax is payable by the heirs on the estate of a deceased individual, which can be as high as 55%. The estate tax can arise by way of investing in US assets. So your stocks and other capital market investments in the US are subject to estate tax when they are passed on as inheritance. As an Indian, the best thing is to buy term insurance to cover this tax liability.

To avoid such hefty estate tax, few set up joint accounts. In the event of the death of one of the account holders, its estate tax is levied only on the portion of the asset held by the deceased.

After all these complicated taxation parts, there are certain tax compliances also which you have to manage and they are as below.

  1. If you are holding foreign assets, then filing ITR is mandatory for you in India (even though your tax liability is below the basic exemption limit.
  2. Investments held by the taxpayer in the US market must be disclosed under Schedule FA i.e. Foreign Assets. Such disclosure is required irrespective of your income. However, for assets within India, disclosure of various types of assets is required only if your total taxable income exceeds Rs.50 lakh.
  3. If you fail to disclose your foreign assets, you could face a penalty of Rs.10 lakh under the Black Money Act, 2015.

Regarding international mutual funds, the taxation rules are as below.

Mutual funds not holding a minimum of 65% of Indian stocks or Indian stock-based ETFs are known as “non-equity” mutual funds by the income tax department. The LTCG is applicable if your holding period is more than 3 years (36 months). Otherwise, it is considered as STCG. LTCG is taxed at a rate of 20% with indexation. However, STCG is taxed as per your tax slab.

Should you invest in US Stocks?

Considering all these complications and costs (holding, buying or selling cost, and taxation), do you feel it is worth experimenting?

But, there are many who feel proud of holding those US stocks (especially tech stocks if someone is in the same profession). However, cross-check at the end what is the net difference for your portfolio (post cost and tax). Many give you the gyaan of allocating around 15% to 20% of your portfolio towards US stocks. However, on this 15% to 20% even if the US stocks outperformed the Indian market with good margin, you have to check what is the post-cost effect for your 15% to 20% of the portfolio and also for the overall 100% of the portfolio.

Just because few platforms offer you to invest and just because social media is abuzz with US stocks does not mean you must invest. Try to choose wisely.

Wherever you invest, the first question to ask yourself is do you need this? The second important question is whom I can contact if something went wrong with middlemen. Are you in a position to complain against these brokers in US if something went wrong with you?

Holding stocks like Google, Microsoft or Amazon kind of companies may thrill you. However, investing for THRILL is different than investing for wealth creation. Choose the now which is best suitable for you 🙂

20 Responses

  1. Thanks for ur guidance and ur views on many aspects ranging from Costs involved in Remittance, Indian Taxation, US taxation,DTAA,consequences on close of operations by service providers, various ways to invest.

    What not gyaan is lot and at the end ur comment is so nice invest for wealth creation not for thrill but we cannot hold our horses we need to show hey see i holded apple

    1. Dear Sinil,
      Please refer the above post. I have already cleared the doubts regarding taxation of international mutual funds.

  2. Hi Basu

    Can you also write about “How to calculate /compute the capital gains on sale of inherited / ancestral properties”.

  3. Truly the best article!
    Can you also enlighten us regarding the ETFs that deals in foreign markets like motilal oswal nasdaq100(MON100). Do we consider this?

    1. Dear Pawan,
      Thanks for your kind words. As I mentioned above, they are treated like debt funds for taxation and also high cost with huge tracking error makes such funds less attractive.

  4. Nice article.

    One correction……”he dollar price against the rupee in 2021, it was at around Rs.46″

    It should be 2012.

  5. You are so right, I did the mistake of putting around 1.5L before I was aware about all these complication , I was able to read a similar article by deepak Shenoy and realised that I made a mistake by buying the US stock, I am stuck now cause I had 1.5L of US stock and I want out but I feel there is no point as I will still have to report this to the tax authorities. I do have a question , let’s say that I sell everything and withdraw the amount ( at a loss) within this financial year, so I still have to show that in income tax as I haven’t made any profit and before end of calendar or financial year I have closed the US account. Can I do that and not worry about all the hassle that you mentioned I want to do that just want the clarification.

    1. Dear Milind,
      Indian debt (especially Gilt) are available at high YTM, why to look for US debt and complicate life? Above that, never try to chase the yield from debt. Debt is meant to park your short term requirement and for asset allocation but not for generating high returns.

    1. Dear Aditya,
      Check their tracking error and post-tax and post-cost end result for you. Better to stay away than run behind fancy products. The noticing fact is they are just highlighting the expense ratio and Vanguard Fund but SILENT on tracking error.

  6. Nice Read…Thank you…also if one compare Returns of Nifty 50 vs DowJones /S&P500 over 10+ yr, Nifty 50 must have given better ( you may validate for data / correct me if i am wrong)
    Also if we held ETF or MF for US mkt ( Say Motilal Oswal Dasdaq fund or similar ) , my understanding is, we need to hold 36 months to qualify for Long term & Taxation is as per Incometax slab… compared to those Gains taxation for Indian Stock/MF is much better & saves…both this put together there is nothing specific to go for US…..unless US mkt do EXTREMLY well….which time will tell !!

    1. Dear Sunil,
      Thanks for your idea. Let me check this also by comparing the Nifty 50 Vs Dow Jones. Yes, regarding taxation, as I mentioned above, hefty tax is a big concern.

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