How to Invest in US Stock Market from India?

We are making it clear from the beginning. Indian market ho ya US apka paisa doobna hoga toh kahi bhi doob jaiga!

There is no other major, affordable, transparent, and liquid financial market like the U.S. market. Its productivity, market capitalization, and a number of listed companies make this market a unique investment opportunity for international investors. The US stock market has hosted a variety of promising companies to choose from and is one of the most stable markets for safe and long-term investment. Let's now understand the hows and whys of investing in the US with comparisons and basic nuances. So that in future, you can dress your portfolio better with American Stock Market.

Why invest in the US Stock Market?

As for determining the overall direction of the stock market in India, we have “Nifty 50”: the top 50 companies in India in terms of free-floating market cap. In the US, we have the “Dow Jones industrial average” or Dow: list of 30 most traded US stocks on NYSE (New york stock exchange) and NASDAQ, which is used to determine market movement.

Do have a look at the two charts. Seems similar right? Or is it?

Different countries, different indicators. It doesn't seem like it!!! 

Let's not talk about maths, no calculations, no hard held points comparing the two—just the two graphs depicting a similar pattern in the past 15 years. A 10-year-old can conclude they are interrelated. The US has the largest economy globally, which goes hand to hand with Dow and has a noticeable influence on the Indian stock market. This makes it essential for us to allocate some funds to US stocks either from the portfolio diversification front or for the sake of understanding and predicting the Indian stock market better with proper exposure.

Now let's understand the basics or, as we call it, the “ABC” of anything.

“ABC” of investing in the US?

Let’s tone down the seemingly convoluted process by firstly understanding the various ways in which you can invest in the US, followed by benefits and then the pivotal and essential information you should be aware of before investing in the US.

That goes as follows:

A: Approaches

B: Benefits

C: Conditions

The different “Approaches” you can take to invest in the US from India?

Direct investment: You can invest directly in American share market and hold shares in your US brokerage account. Modern Trading platforms and stockbrokers provide real-time trading in major exchanges like the New York stock exchange (NYSE), NASDAQ, and AMEX (American stock exchange). You should track your investment and do your stock analysis. 

ETFs or Exchange Traded funds: You can invest in US ETFs for consistent returns. These ETFs replicate a portfolio included in the index with the same weight of investment. It ensures a return similar to the market index.

Mutual Funds: You can invest in Mutual Funds to avoid the hitch of tracking the performance of your shares and market movements. These funds appoint fund managers to analyse market movements and manage portfolios. Mutual funds hold a distributed amount in stocks, bonds and debts. Mutual Funds usually charge a fee to provide these services in terms of either expense ratio and exit load.

Okay Okay! Talking about the “Benefits”?

• With all the tech giants such as Meta, Microsoft, Amazon, Netflix, and so many other global players, it makes the US stock market a viable option and well-exposed place.

• The US dollar appreciation against INR adds to the liking of US stock value. Dollar me kmayenge, rupay me udayenge!!

• The enablement of fractional buying of shares allows the investor to allocate the sums more efficiently and effectively. For example, say a company’s share costs 100 dollars, but you have 50 dollars to invest in buying 0.5 shares of that company.

• The prospect of diversification.

• Over ten years, Dow has had higher returns than Sensex for three years, five years and even ten years! 

• The US dollar is considered more fluctuation safe compared to INR even in a crisis.

This summarises the benefits. As an investor, you should understand the requirements, taxes and schemes before investing in the US for your good.

“Conditions” to invest in the US Stock market

US Brokerage account: You will need an overseas trading account in your name, which provides the interface for trading the stocks and a Demat account where the stocks you buy will be funded. Your domestic broker will open a trading account and the Demat account for you after submitting the required form and documents.

Like Zerodha in India provided the interface as a broker and the Demat account. Most of the brokers require your Pan Card, address proof, viz. Aadhar Card, along with the bank statement, will be used for the transfer of money.

Liberalised Remittance Scheme of RBI (LRS): The LRS states that the limit on the transfer amount made by an Indian citizen is USD 250,000 per annum. This is set out in the FEMA Act, 1999 by the RBI. If this is supposed to exceed, then the person must get a pre-approval from the RBI. That's a big IF!

Double Taxation Avoidance Agreement (DTAA): One of the better agreements which stop the looting of Indian citizens in terms of double taxation from two countries is DTAA. As shares and profits from the US market are taxable in India and the US. The DTAA between India and the US protects Indian investors from double taxation on the same income. 

Indians can be charged with two types of taxes on US stock trading:

1. Dividend Income: It will be taxed at a flat rate of  25% in the US. Due to DTAA, you get foreign tax credits which you can use to offset the income tax to be paid in India, avoiding double taxation.

2. Capital Gains:

• Short-term capital gain tax: If you hold the stocks for less than 24 months, yes, unlike India, where the threshold is 12 months, you have to pay a capital gain tax according to your tax slab.
• Long term capital gain tax: If you hold the stock for 24 months or more, you have to pay 20% tax on your gains.

Both Short term and Long term taxes have to be paid in India. The US does not withhold any amount.

The Bottom Line

The new-age apps have significantly eased up US investing.The costly wire transfer which incurred costs like forex and transfer charges have been proxied by much cheaper “direct transfers” which occur via banks like State bank of Mauritius assisted by your broker without any hassle, dropping the transfer, forex charges. Apart from this some brokers are also working on zero commission and unlimited investing.

Investing in the US market can often seem very complicated. However, with the support and practice of a trusted platform, you can easily master your US investing skills while sitting anywhere in India. You can also stay up to date by listening to analyst discussions, articles, and case studies on global investing.