Stock / Share Market
by 5paisa Research Team Last Updated: 2022-11-28T13:23:26+05:30

Introduction

Several investors in India are interested in investing in the stocks of the United States. They want to diversify their portfolio. Hence, they are actively looking for international investments to give them a flavor of the global market. The US stock market has stocks from some of the most coveted companies like Facebook, Google, Apple, etc.
When you invest in these foreign stocks, you reap the benefits of the strengths of these companies. You can also earn a good return on these investments when the company makes the next growth moves. You can invest in US stocks from India in different ways. Read on to learn how to invest in US stocks from India.

There are two primary ways of investing in the US stock market.

●  Direct Investments
●  Indirect Investments

Let’s understand these ways in detail.
 

Direct Investments

Are you wondering how to invest in US stocks directly? The method of making direct investments in any US stock is quite easy. There are two primary ways to do it.

You can get in touch with a broker within India and ask them to help you with an overseas trading account, or you can reach out to a foreign broker and seek help setting up an overseas trading account.

●  Opening an Overseas Trading Account With a Domestic Broker

The stockbrokers from India also have an extensive network in foreign countries like the US. They are connected to the stockbrokers who operate in the US. Domestic brokers act as a bridge between the investors and the foreign broker and help you invest. The domestic broker will ask you for a set of documents to open your overseas trading account.

However, when you make direct investments through a domestic broker, some restrictions are placed on certain investments, like the type and the number of trades. It would help if you talked to your domestic broker about the same. Also, as two brokers are involved in the entire process, the cost of investing in US stocks increases drastically.

●  Opening an Overseas Trading Account With a Foreign Broker

If you are wondering how to easily invest in the US stock market, you can reach out directly to a foreign broker. Several foreign brokers have their operations up and running in India as well. Some brokers operating from India include Interactive Brokers, Charles Schwab, etc.

You must consider the fees and additional costs involved in dealing with these brokers before you get into an agreement. You should know the investments these foreign brokers can help you with. Hence, you must conduct thorough research before you choose a foreign broker.
 

Indirect Investments

Are you thinking about how to buy US stocks without involving a broker? If yes, there is a way out. You can invest in US stocks using some indirect methods. You can get exposure to the US stock market and the US stock of your choice without making a direct investment. Some of the most common ways of investing in a US stock indirectly are:

●  Mutual Funds

When you pick a mutual fund that invests in different US stocks and other securities, you don’t need to open an overseas trading account. You can invest in these funds through an asset management company that has created the mutual fund.

Also, when you invest in these mutual funds, there are no minimum balance requirements, unlike opening an overseas account.

●  Exchange-Traded Funds (ETFs)

Another way of making indirect investments is to invest in an exchange-traded fund. There are several ETFs out there. You can invest in an Indian ETF replicating the international indices to get exposure to the US stock market.

Also, you can reach out to an international broker to invest in global ETFs directly.

●  Investing via New-Age Apps 

If you are looking for answers to how to invest in the American stock market without any hassle and additional charges, using a new-age investing app is the only best way. Several trading apps in India allow you to invest directly in the US stock market.

However, some apps might not have the authorization to make investments directly in the US stock market. Therefore, you should conduct thorough research before choosing a new-age app for investing in the US stock market. 
 

How Much Can I Invest in US stocks?

If you are new to foreign investments, you must know the limits placed on the investment amounts when choosing a US stock. The Reserve Bank of India has released a set of guidelines that govern these investments. As per the Liberalised Revenue Scheme of RBI, an investor can only invest up to $2,50,000 in US stocks.

The amount is roughly equivalent to INR 2 crores. If you invest beyond the limit set by the RBI, you will be subjected to scrutiny and different penalties.
 

Tax and Charges on Investment in US Stocks

Different kinds of taxes and charges apply to your investments in US stocks. You must pay these taxes to comply with the investment rules in the country. These taxes include:

●  TDS or Tax Collected at Source

If you invest more than INR 7,00,000 in US stocks, a TDS of 5% will be levied above INR 7,00,000. This provision is a part of the Liberalized Remittance Scheme governed by the RBI. However, you can claim the TDS as a refund while filing your income tax returns.

●  Dividend and Capital Gains Tax

A 25% dividend tax applies to all the dividends earned by an Indian citizen by investing in the US stock market. However, India has a Double Tax Avoidance Agreement with the United States. Hence, you can claim a credit for these taxes to avoid double taxation on your dividend income.
You will also have to pay a capital gains tax in India on your US investments. The capital gains tax rate is decided based on your income slab in India.
 

What Are the Different Charges Involved While Investing in US Stocks?

Apart from the taxes, several other charges are applicable when investing in US stocks. Some of these charges include:

●  Bank Charges

When you invest in US stocks, you need to transfer the money to another country. Hence, your bank may charge a currency exchange fee and money transfer charges.

●  Brokerage 

Like any other stock exchange investment, you will have to pay a brokerage to the brokers who help you invest in US stocks. These charges differ from company to company.

●  Foreign Exchange Charges

When an Indian investor invests in a US stock, he has to bear the impact of the foreign exchange rate while making the investment or withdrawing the principal and the returns.
 

Reasons to Invest in US Stocks From India

There are several reasons to invest in US stocks. Once you know how to invest in US stocks from India, you should understand the benefits of making these investments. Some of the best reasons for investing in US stocks are:
● The US stock market is much more stable than the Indian stock market. Hence, your chances of earning a steady return improve.
●  As the US is the hub of mega corporates, you get a chance to invest in these companies when you invest in the US stock market.
● The US stock market is one of the best-performing markets in the world. Hence, you should be exposed to some of the stocks listed on the US stock exchange.
●  You can invest in both new-age start-ups offering promising growth and other well-established companies.

 

Things to Remember Before Investing in US stocks From India

As investors do not have a lot of know-how about the US stock market, there are some things that you must remember about investing in US stocks. Some of these considerations include the following:
● As the market is new for you, you must start investing with a small amount. Once you understand the market well, increase the investment corpus.
● Before you buy any stock units, you must check the applicable tax rates and other charges associated with the stock.
● If you want exposure to the US stock market, you should consider safer investments than trading. Trading comes with huge costs, and it can reduce your returns drastically.
● You need an expert to help set up an overseas trading account. Therefore, conduct thorough research before you finalize a broker.

 

Conclusion

Investing in the US stock market can be quite interesting. However, you need to consider all the risks that these investments have. Research the taxes and other charges that apply to these investments before you invest in the stock market.

 

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