How to Invest in US Stocks from India: A Complete Guide

The global economy is dominated by the US stock market, which accounts for nearly 60% of the global stocks. Indian investors can now geographically diversify their portfolios by investing in US stocks from India. US stocks are particularly attractive due to their low volatility. This blog will discuss how to buy US stocks in India and other essentials to consider for Indian investors to invest in the US market.

Understanding the Basics of Investing in US Stocks from India

When it comes to investing in the US market, there are multiple aspects that Indian investors must be aware of to avoid making mistakes. Some of these have been listed below:

• Investment Cap by RBI

Indian investors can legally buy US stocks under the Liberalized Remittance Scheme (LRS) set by the Reserve Bank of India (RBI). Under LRS, individuals can remit up to $250,000 per financial year for foreign investments, which includes US stocks.

• Key US Stock Exchanges and Indices

The US stock market flourishes through two major exchanges: the New York Stock Exchange (NYSE) and NASDAQ.  Market performance is tracked through three major indices — S&P 500, Dow Jones Industrial Average (DJIA), and NASDAQ. 

• The S&P 500 keeps a tab on 500 large-capitalisation companies.
• The Dow Jones Industrial Average (DJIA) focuses on 30 elite blue-chip firms. 
• The NASDAQ Composite focuses on technology and growth companies.

• Trading Hours and Time Zone Differences

US market remains open from 9:30 am to 4:00 pm Eastern Time, Monday to Friday. Here is the market timing concerning IST:

From March to November, daylight saving time shifts market opening one hour earlier in IST. Markets are closed on weekends and major US holidays.

• Requirements to Invest in Foreign Stocks in India

Open your online Demat account by completing your KYC. For KYC, you will need to submit the following documents

• PAN card
• Aadhar card
• Bank account details
• Address proof
• Foreign remittance details (as per LRS guidelines)

To invest in foreign stocks, you need to transfer funds from an Indian bank account to the brokerage account through a remittance via a bank (SWIFT transfer or wire transfer). Once funds are transferred, you can start investing in your preferred US stocks. 

How to Invest in US Stocks from India?

The ways in which Indian investors can invest in the stocks of the US are as follows:

• Direct Investments Through a Domestic Broker

You can open an overseas trading account with a domestic brokerage firm with tie-ups with US brokers.

• Direct Investments Through an International Broker

You can opt for the best brokers for international stocks with an Indian presence to start directly investing in the US stock market.

• NSE International Financial Service Centre Exchange

You can also trade US stocks through the NSE IFSC, a wholly owned subsidiary of the National Stock Exchange (NSE). To start investing, you need to register for a new Demat account with an IFSCA-licensed broker.

• Mutual Funds

Investing in US stocks from India is easy through mutual funds. While it waives the brokerage cost of an overseas trading account, the availability and restrictions can vary. However, at present, the mutual funds remain partially restricted as per RBI regulations.

• Exchange Traded Funds

US ETFs can be purchased via a domestic or foreign broker, or you can purchase Indian ETFs of US indices. The lower expense ratio of ETFs makes them more beneficial than actively managed funds.

Why Invest in US Stocks?

Investing in US stocks offers several benefits:

• Global Diversification

Investing in US stocks from India gives you exposure to global markets, thereby reducing risks associated with a single economy.

• Access to Top Companies

US securities markets list some of the world’s largest and most innovative companies. The massive size, trade volume, and investment options in the US stock market present a unique growth opportunity for Indian investors in the US market.

• Currency Gains

The US dollar has always been stronger than the Indian rupee. This, in turn, offers investors better returns. Currency exchange rates also add to the gains you earn from investing in the US stock market.

• Better Market Stability

The US stock market is one of the most mature and stable markets globally. However, it is not immune to volatility and can experience significant fluctuations, especially during global economic downturns. The Indian stock market has bigger swings than the US. 

Types of Stocks to Invest in and Why?

Based on investment goals and risk tolerance, you can consider diversification into the below categories of US stocks:

• Growth Stocks: These stocks show high potential for expansion and revenue growth.
• Dividend Stocks: Investors seeking regular income can invest in these kinds of stocks.
• Blue-Chip Stocks: These stocks belong to large-cap companies with a history of consistent performance and resilience in market downturns.
• Technology Stocks: Technology is the driving force of the global economy. Such stocks provide long-term growth opportunities.
• Defensive Stocks: Stocks belonging to healthcare, consumer staples, and utility sectors perform steadily, even during economic downturns. 

Tax Implications for Investing in US Stocks

US stock investments come with tax implications applicable in both countries (India and the US), and knowing the rules can help you deal with them more wisely.

• Short-term Capital Gains: US stocks held for less than 24 months are taxed as per income slab.
• Long-term Capital Gains: US stocks held for more than 24 months are taxed at 20% plus surcharge and cess. 
• Withholding Tax: Dividends from US stocks are subject to a flat 25% tax rate in the US. 
• Tax Credit: You can claim a tax credit in India under the India-US Double Taxation Avoidance Agreement (DTAA).
• Foreign Exchange Management Act (FEMA): Investors must comply with FEMA and disclose their foreign assets and income in their tax returns. 

Conclusion

Investing in the US stocks from India is a good way to gain exposure to global markets. However, one must understand tax implications, market risks, and compliance issues before investing.

By following the right strategy and staying informed about global trends, Indian investors can make the most of their international investments.

For stock market investment guidance, connect with Torus Digital today!