Introduction to US stocks
US stocks offer an attractive investment option for global investors. Several companies listed on the US stock exchanges have global operations, hence contain less market risk than other stock markets. This factor makes the US a compelling investment destination.
Many investors have included high-performing US companies in their portfolios as their home countries often have unpredictable stock markets, unstable economies, and declining per capita incomes. According to statistics available for the financial year 2021, Indian investors have invested in more than 5,000 US securities, not just FAANG firms.
Nevertheless, investors should be aware of the big picture and understand how the US market operates before investing. Let’s dig in.
How to invest in US stocks from India
If you are considering investing in the US financial market, this post is for you. However, before you invest, you need to understand some important factors.
1. Regulatory framework
The Securities and Exchange Commission (SEC) regulates the US stock market, similar to how the Securities and Exchange Board of India (SEBI) is the Indian market regulator. The US market is one of the world’s oldest and most tightly regulated stock markets.
Since the 1930s, the SEC has ensured strict compliance with rules and regulations. It has established some of the best practices, which are essential for the protection and trust of investors.
In the past, US markets have done better than Indian ones. For example, the US markets have outperformed Indian indexes by 8–15% over the previous ten years, even though historic results are no assurance of future results.
2. Foreign exchange consideration
Another essential factor you should consider is the foreign exchange before you invest in the US stock market. If you are investing from outside the US stock market, you must exchange your profit for the local currency to use in your country. However, your can benefit from the US stock market investment as the US dollar is stronger than INR, and you can earn good returns despite forex exchange charges. Also, as a currency, USD has global validity, unlike INR, with regional acceptance.
However, the USD-INR currency pair’s foreign exchange rate is prone to daily swings. You must remember to check the forex exchange rates while transferring money to an Indian account from a US one. Besides, banks frequently charge markup costs when changing currencies.
3. Taxes
India and the US are signatories to the Double Taxation Avoidance Treaty (DTAA). A native Indian citizen who receives income from the US need not pay taxes twice under this treaty. Investors can opt to pay their taxes in India.
Still, any gains or dividends you earn in dollars are translated into rupees, with exchange swings influencing returns. In such cases, investors can move funds from the US to the brokerage account to minimize this risk with the help of experienced brokers.
However, investors generally hold equities for up to two years. In that case, long-term capital appreciation tax is due, and short-term capital gains tax is due if the period is shorter than two years.
4. Charges
A stockbroking account from India cannot be used to trade in the US financial markets. Instead, you must create an account with a US securities brokerage. Most Indian stock brokers that let you invest in US equities work with a US stock brokerage to provide this service.
Besides, as with Indian brokerages, you must pay specific charges for a US securities brokerage account. The fees consist of annual maintenance fees, brokerage fees, bank fees, transaction fees, and more. Since these fees can potentially reduce your profit, consider this when buying US equities.
5. Fund limit
The Liberalised Remittance Scheme (LRS), implemented by the Reserve Bank of India (RBI), establishes the maximum annual investment or transfer that an Indian individual may make outside of the country.
The LRS states that an individual’s annual cap for overseas investment is $250,000. After that point, an Indian citizen cannot send any additional money outside without the authority’s permission.
In a given fiscal year, investments in US equities, deposit accounts, real estate, out-of-country travel, and educational costs are subject to the $250,000 annual cap. Do remember that the cap includes all remittances you make abroad in a given year, not just investments in US equities.
Conclusion
Now that you know what to look out for before investing in the US stock market, go ahead and try it out yourself. Contact a professional if you’re looking for a brokerage firm to assist you with investing in US equities.
You can invest in the US stock market by using several online trading platforms. To start with, create a demat and trading account. Fortunately, you can open an account with CoinSwitch and start investing in the US stock market hassle-free.
FAQs
What are the five factors to be considered before investing in US stocks?
The five factors to be considered are the maximum foreign remittance allowed abroad in a year, fractional share ownership, foreign exchange’s effect on your investment, taxes, and the cost of opening a US stockbroking account.
Do we have to pay tax on US stocks?
Yes. But thanks to DTAA, an Indian investor putting money into US stocks has to pay for the income according to the taxation laws in India.
How can I buy US stocks from India by opening a US trading account?
You may immediately trade in the US share market by opening an international brokerage account with a domestic or international broker. However, before selecting the app for investing, please educate yourself about the fees payable.
What are the 5 things to remember before investing?
Before investing, consider your investment objectives, risk tolerance, diversification, fees, and investment timeline. Research the investment thoroughly and create a financial plan.
What is the 5 % rule in the stock market?
The “Five Percent Rule” is a stock market guideline suggesting that no single stock in a portfolio should represent more than 5% of the total holdings to manage risk.
What do you need to invest in the US stock market?
To invest in the US stock market, you need a brokerage account, sufficient capital, and access to online trading platforms. Consider your investment goals and risk tolerance before investing.
What are 5 tips for how do you select stocks to buy?
To select stocks, follow these tips: 1. Define financial goals. 2. Assess risk tolerance. 3. Understand the company’s operations. 4. Analyze financial ratios. 5. Avoid investing in unfamiliar businesses.
