Investing in US Stocks from India: A 2024 Guide

Investing is a way to grow your money and make it more sustainable for the future. You are able to invest in US stocks as an Indian investor. It allows you to diversify your portfolio beyond the Indian market, which can help to lessen risk and boost potential returns. If you’re wondering how to invest in US stocks from India, there are various online platforms and brokerage services that facilitate international investments, providing you with the opportunity to explore and participate in the dynamic US stock market.

It provides a hedge against currency fluctuations and enables you to protect your investments. According to Pranav Karnad of Fi App, an expert in foreign stock investment, it is the ideal time to invest in the US stock market.

This is because as the value of the dollar’s rising stature increases, your US stocks investments do well too. The US is home to most of the best technology and other wealth-developing industries that provide great investment options.

With all the amazing prospects and perks this investment offers, how to invest in US stocks from India? This article will explain how to know how to invest in NASDAQ from India, how to invest in the US stock market and invest in US mutual funds.

We will also give you information about US stock brokers in India and the steps you need to take to invest in foreign stocks. So, let’s start learning about the exciting world of how to invest in US stocks and how you can benefit from them!

Types of Investments in the US stock market

Investing in the US stock market may feel overwhelming, especially for Indians. But don’t worry. There are ways to know how to invest in US stocks from India. Let’s learn about the 2 different types of investments that can be made in the US stock market from India.

Direct Investment

Direct investment entails setting up a brokerage account with a business that specialises in serving Indian clients. With a paperless account opening process, you can learn how to invest in US stocks, bonds, ETFs, and mutual funds, without any minimum balance requirements and commission-free trading.

How to Open an Overseas Trading Account with a Domestic Broker

You can open an overseas trading account with a domestic broker by:

• Choosing a broker that best suits your needs in terms of trading platform, customer service, fees and other relevant factors.
• Submitting documentation like your proof of residency and tax identification details for approval to enable you to open the trading account.
• Funding your account with the right currency. You can use a third-party payment gateway or you can transfer directly. (Keep currency conversion fees and other transaction costs in mind)
• You can begin trading once the funding process has been successful.

How to Open an Overseas Trading Account with a Foreign Broker

Opening an overseas trading account with a foreign broker can provide access to new markets and investment opportunities that may not be available with a domestic broker. Here are the steps to open an overseas trading account with a foreign broker:

• Choose a broker that provides services and tools that align with your investment strategy and risk tolerance.
• Ensure the broker is available to offer their service to India.
• Complete the broker’s online account opening process with personal information such as your name, address, and tax identification number. The broker may also require you to present identity verification documents such as a passport or driver’s license.
• Find your account once it has been approved 
• Familiarize yourself with the broker’s trading platform to help you navigate the process easily.
• Start trading.

Indirect Investment

Investing in US equities indirectly entails using mutual funds, exchange-traded funds, or feeder funds that support global markets. However, since these investments are made in India using Rupees, there is no investment limit for Indian residents. Below are ways to know how to invest in US stocks from India indirectly:

1. Mutual Funds:

• Mutual funds are investments managed by professional fund managers.
• They pool money from multiple investors to invest in diverse areas, which may include stocks, bonds and other securities.
• Mutual funds provide exposure to the US stock market by investing in US-based companies’ stocks.
• These funds vary in their structure and organization. Some may focus only on US equities, while others may have a broader international focus.
• Investors can buy units or shares of mutual funds, and the fund’s performance directly impacts the value of these shares.

2. Exchange-Traded Funds(ETFs):

• ETFs are similar to mutual funds in that they also pool money from investors to invest in diverse areas.
• However, ETFs are traded on stock exchanges, just like individual stocks, throughout the trading day.
  ETFs typically track a specific stock index, such as the S&P 500, NASDAQ, or Dow Jones Industrial Average.
• By investing in an ETF that tracks a US stock index, investors gain exposure to the performance of the underlying US stocks included in that index.
• ETFs offer liquidity and flexibility as they can be bought and sold at market prices throughout trading.

3. Feeder Funds:

• Feeder funds are a type of investment that invests in a master fund.
• These funds pool money from investors and then invest that money into a master fund, which invests in US stocks.
• Feeder funds are often used for international investing, where the master fund may be based in the US and focused on US equities.
• The feeder fund structure allows investors to indirectly invest in US stocks from India through the master fund’s portfolio.
• This setup can sometimes be used to overcome regulatory or tax barriers for international investors.

It is important to understand the underlying assets of the financial instrument being used to know how to invest in US stocks from India indirectly, as well as any connected fees or risks. This includes knowing which US stocks the mutual fund, ETF, or feeder fund is invested in and understanding the sector allocations, market capitalizations, and other relevant factors. Investors should also be aware of any fees associated with investments such as management fees, expense ratios, and transaction costs.

Charges Involved in Investing in US Stocks

Knowing about how to invest in US stocks from India presents exciting opportunities for potential investors. But it is important to know about the costs involved. These costs can include fees from banks and brokers and taxes on capital gains and dividends.

Therefore, it is important to understand these charges before making any investments:

Bank Charges

When investing in US stocks, you may need to make international money transfers, which can incur bank charges. These charges can vary depending on your bank and the money being transferred.

Brokerage Fees

If you know how to invest in US stocks through a domestic or foreign broker, they may charge brokerage fees for their services. Brokerage fees can include charges for buying and selling stocks, account maintenance, and other services.

Capital Gains and Dividend Tax

When investing in US stocks, you may be subject to capital gains and dividend tax. Capital gains tax is the tax on the profit you make when selling a stock, and dividend tax is the tax on the income you receive from dividends. These taxes can vary based on your income level and the duration of your investment.

Also Read: Maximizing Profit: Expert Intraday Trading Tips

Factors to Consider Before Investing in US Stocks from India

Investing in United States stocks from India can be a thrilling chance to spread your investments and potentially earn good returns. But before you jump in, there are a few things you need to think about so you can know how to invest in US Stocks smartly:

Risk

• Investing in stocks means putting your money into companies, but it can be risky. The value of your investments can change because of things like how well the company does or of generally what’s happening in the world.
• Before knowing how to invest in US stocks from India, you need to think about how much risk you’re comfortable with and what you want to achieve with your money. It’s a good idea to talk to a financial advisor to figure out what’s best for you.

Research Before Investing

How to invest in the American stock market? When purchasing American stocks, research is crucial. You must thoroughly research and evaluate the businesses you intend to participate in as an investor. This implies that you must be aware of the financial health of the business, its growth strategies, its rivals, and its management team. It’s also crucial to stay up to date on news on how to invest in the US stock market so you can make wise investing decisions.

Understanding Currency Exchange Rate

• When investing in stocks from the United States while in India, it’s important to know how the exchange rate between Indian Rupees and US Dollars can change.
• The exchange rate can go up and down, affecting how much money you make from your investments. It’s a good idea to talk to an expert who knows about exchange rates or a financial advisor to learn how to manage this risk and make smart investment decisions while knowing how to invest in US stocks.

Tax Implications

• If you’re an Indian investing in US stocks, you must know about taxes. You might have to pay taxes on the money you make from your US stock investments. This includes taxes on profits, money you get from dividends, and interest you earn.
• It’s important to understand the tax laws in India and the US. Then, you can talk to a professional to ensure you’re following the rules and not paying too much tax.

Choose a Suitable Broker

To invest in stocks from the United States while living in India, you need to open an account with a stockbroker that allows international investments. Many US stockbrokers in India are famous and manage large amounts of funds. Many also have branches in India.

So, choosing a suitable and trustable broker is very important.

Risks and Considerations in US Stocks

Currency Risk

Here’s the way to explain how to invest in stocks from India and how currency changes can affect your investments:

1. Currency Changes Affect Your Money

When you invest in stocks from another country, the returns you make depend on how that country’s currency compares to your own. For example, if you invest in U.S. stocks and the dollar becomes stronger compared to the Indian rupee, you’ll get more money when you convert it back to rupees. If the dollar gets weaker, you’ll receive less.

2. Ways to Protect Yourself

If you’re looking to invest in stocks from India but are worried about currency changes, there are tools you can use to protect your investment. These tools, called hedging instruments, can reduce your risk, though they may also limit your potential gains.

3. Why Currencies Go Up and Down

Currency values change for reasons like interest rates or political issues. For instance, if a country raises its interest rates, more people may want to invest there, strengthening its currency, which impacts your foreign investments if you are investing in stocks from outside India.

4. Big Companies and Currency

When investing in stocks from India, consider how multinational companies are affected by currency changes. If these companies earn money in a different currency and the exchange rate is unfavorable, it could impact their profits and, in turn, your investment.

5. Spread Out Your Investments

When you invest in stocks from India and internationally, diversifying across different currencies and countries helps reduce your risk. Even if one currency drops in value, others may rise, balancing your overall investment returns.

6. Short-Term vs Long-Term

Currency changes can be volatile in the short term, but if you’re investing in stocks from India or abroad for the long term, these changes often balance out, reducing their overall impact.

This approach not only explains currency fluctuations but also highlights how to invest in stocks from India and manage potential risks related to currency changes.

Market Volatility

Market volatility refers to the sudden and large changes in prices in financial markets. These changes can happen because of economic news, changes in government policies, or global events. Here’s a simple explanation of the risks involved and how you can manage them:

1. Losing Money: If prices move quickly in the wrong direction, you could lose a lot of money, especially if you need to sell your investments in a hurry.
2. Making Emotional Decisions: When markets are unstable, people often react emotionally, like selling in a panic or buying too much too fast, which can lead to bad decisions.
3. Trouble Buying or Selling: In very volatile times, it can be hard to sell or buy assets without affecting the price. This can cause liquidity problems, meaning you might not get the price you want.
4. Higher Costs: With volatility, the difference between buying and selling prices (bid-ask spreads) can widen, leading to higher transaction costs.

Regulatory Changes

Here’s a simpler way to explain why staying updated on regulatory changes in both countries is important:

1. Avoiding Fines and Legal Trouble – When rules change, businesses need to follow new regulations to avoid penalties or legal problems. Staying informed helps them comply with the rules and avoid costly fines or damage to their reputation.

2. Better Business Planning – Knowing about upcoming rule changes helps businesses plan ahead. They can adjust their strategies, change how they operate, or explore new markets without surprises.

3. Staying Ahead of Competitors – Businesses that adapt quickly to new rules can get a leg up on their competition. By being prepared, they can keep operations running smoothly and even gain an advantage over companies that are slower to adjust.

4. Reducing Risks – Regulatory changes can cause disruptions and add costs. By staying updated, businesses can prepare for these risks and reduce their negative impact.

5. Boosting Reputation – Following new regulations proactively can improve a company’s image. It shows that the business is responsible, ethical, and committed to following the rules.

6. Expanding to New Markets – For companies that operate internationally, knowing the rules in different countries is crucial. It helps them maintain market access and expand to new regions smoothly.

7. Keeping Operations Efficient – By adapting to rule changes in a timely manner, businesses can keep their operations efficient and avoid the chaos of last-minute adjustments that can be costly.

Legal and Regulatory Framework

Liberalized Remittance Scheme (LRS)

The Liberalized Remittance Scheme (LRS) allows people living in India to send up to USD 250,000 abroad per financial year for certain purposes. Here’s what you need to know:

1. Who Can Use It?: All residents of India, including children, can use LRS as long as they have a valid PAN (Permanent Account Number) and an active bank account.
2. What Can It Be Used For?: You can use this money for things like studying abroad, traveling, medical treatments, and investing in foreign stocks or property.
3. What Can’t It Be Used For?: Some activities, like buying lottery tickets or trading foreign currencies, are not allowed under LRS.
4. Income Abroad: You don’t have to bring back any income earned from your investments abroad.

Tax Implications

In India:

1. Dividends and Interest: Any money you earn from dividends or interest on your investments will be added to your total income and taxed according to your income bracket.
2. Capital Gains:

• Short-Term Gains (assets held for less than 36 months) are taxed at 15%.
• Long-Term Gains (assets held for more than 36 months) are taxed at 10% if the gains exceed INR 1 lakh.

In the US:

1. Dividends: Dividends from US stocks are taxed at 25%, but this can be reduced due to an agreement between India and the US (called the Double Taxation Avoidance Agreement).
2. Capital Gains:

• Short-Term Gains: These are taxed at regular income tax rates, depending on how much you earn.
• Long-Term Gains: These are taxed at a lower rate, usually 15% or 20%, depending on your income.

Double Taxation Avoidance Agreement (DTAA)

The DTAA between India and the US prevents you from paying tax twice on the same income. If you pay tax in the US, you can claim a credit when filing taxes in India.

This should help you understand the basics of the legal and tax rules when investing both in India and the US.

Tools and Resources

Here’s a simpler way to explain investment platforms and educational resources:

Investment Platforms and Tools

1. Interactive Brokers: Best for experienced investors, offering a lot of investment choices with low fees.
2. TD Ameritrade: Perfect for beginners, with an easy-to-use app and lots of learning materials.
3. Fidelity Investments: Great for everyday investors, known for excellent customer service and research tools.
4. Charles Schwab: Best for customer support, offering a solid trading platform and good market information.
5. Tastytrade: Ideal for people focused on options trading, with innovative tools and affordable trades.

Educational Resources

Books

1. “The Intelligent Investor” by Benjamin Graham: A classic guide to value investing.
2. “A Random Walk Down Wall Street” by Burton G. Malkiel: Offers various investment strategies.
3. “Common Stocks and Uncommon Profits” by Philip Fisher: Focuses on analyzing stocks in-depth.

Courses

1. Stock Market From Scratch for Beginners (Udemy): A full course for new investors.
2. Investing Classroom (Morningstar): Free, detailed courses on investing topics.
3. Warrior Trading’s Courses: For those who want to dive deep into trading strategies.

Websites

1. NerdWallet: Compares investment platforms and provides educational content.
2. U.S. Securities and Exchange Commission (SEC): A trusted source for understanding investment rules and education.

These resources are designed to help you start investing and grow your knowledge.

Should You Invest in US Stocks from India?

Investing in US stocks from India has become easier in 2023 due to advancements in technology and the availability of online trading platforms. We have seen how to invest in the US stock market.

Here is a recap of the few simple steps. First, the investor should open an account with a US stock broker like the very well-known Zerodha invests in US stocks. They can also choose Indian brokers that provide access to international markets, such as NASDAQ.

Once the account is opened, investors can deposit Indian rupees, which will be converted into US dollars for trading.

Investors have different choices for investing in US stocks. They can use an online trading platform provided by their broker to buy stocks listed on the NASDAQ. They can use the information given in this blog to know how to invest in NASDAQ from India.

We have also seen another option — how to invest in US mutual funds from India. This offers diversification and professional management.

However, it’s important to note that investing in foreign stocks in India carries risks such as currency fluctuations and market volatility. Therefore, Indian investors should thoroughly research, understand the risks involved, and seek professional advice if they want to know how to invest in US stocks successfully.

Want to explore helpful techniques to save and grow your hard earned money? Dive in to our guide on Save Money.

Frequently Asked Questions (FAQ’s)

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