How to Invest in US Stocks from India?

Did you know the S&P 500, representing America's 500 largest companies, has delivered an average annual return of 10% over several decades?

The US stock market houses some of the world's most successful companies like Google, Apple, and Facebook. You can now easily invest in US stocks from India to vary your portfolio or tap into innovative sectors like AI and electric vehicles.

Indian residents can invest up to $250,000 (approximately ₹1.9 crore) per year in foreign markets through RBI's Liberalized Remittance Scheme (LRS). International investments bring their own set of rules, from TCS implications to dividend taxation.

This detailed guide will help you start your US investment trip with confidence. Let's explore everything you need to know about investing in US stocks from India.

Understanding the Basics of US Stock Investment from India

"The US Stock Market is the Biggest Stock Market in the world valued at over $24 Trillion" — Motilal Oswal, Financial services company

The US stock market's total market capitalization of INR 4286.53 trillion makes it an attractive destination for Indian investors looking to expand internationally.

What makes US stocks attractive for Indian investors

Some of the world's most innovative companies in technology, healthcare, and consumer sectors call the US market home. Indian investors can benefit from this in several ways:

• Global diversification - Your risk decreases when you spread investments across international markets, especially during India's economic downturns

• Currency appreciation - The Indian rupee's 36% depreciation against the dollar in the last 12 years has created additional returns for investors

• Stability - US stock market indices have proven more stable than the Indian market historically

• Access to innovation - You can invest early in promising global companies during their growth phase

Many multinational companies with headquarters in the US operate in India, letting investors put money into familiar brands that have global reach.

The Liberalized Remittance Scheme (LRS) explained

The Reserve Bank of India introduced the Liberalized Remittance Scheme in 2004 to help with overseas investments. Here's what you should know:

• The scheme started with just INR 2109511.27 per resident yearly

• Indian residents can now send up to USD 250,000 (approximately INR 21095112.70) each financial year

• You need an active Indian bank account and valid PAN card

• The scheme covers various needs including education, travel, and medical expenses

Note that the scheme doesn't allow buying lottery tickets or items restricted under FEMA rules.

Direct vs. indirect investment methods

You have two main ways to invest in US stocks:

Direct investment options:

1. Set up an overseas trading account with foreign brokers operating in India

2. Work with domestic brokers who partner with US stockbrokers

   
   

Indirect investment options:

1. Choose international mutual funds tracking US market indices

2. Pick Exchange-Traded Funds (ETFs) focused on US stocks

3. Trade selected US stocks through NSE IFSC Exchange in GIFT City

   
   

Each method has its unique features. Direct investing gives you complete control but might cost more in brokerage fees and currency conversion. Mutual funds and ETFs offer an easier path with built-in diversification if you're new to the market.

Your investment goals, costs, taxes, and personal strategy should guide your choice of approach.

Choosing the Best App to Invest in US Stocks from India

Indian investors can choose from many platforms to invest in US markets. Your investment goals, experience, and budget will help you pick the right app.

Top platforms for beginners

New investors who want guidance can choose from several easy-to-use platforms:

• Vested has a digital KYC process, zero platform fees, and lets you access over 5,000 US stocks and ETFs. You can invest in fractions of shares with just ₹84, which makes expensive stocks like Amazon available to everyone.

• INDmoney comes with competitive pricing and zero AMC charges. You can track your dividends through a dedicated calendar. Your investments get SIPC insurance protection up to ₹4 crore.

• Groww appeals to budget-conscious investors with trades costing just ₹1.69 per transaction. This makes it one of the cheapest options around.

Comparing fees and features

These key cost factors need your attention:

• Account minimum: Vested and INDmoney start at ₹0, while Interactive Brokers needs about ₹42,000.

• Trading commissions: Options range from commission-free to tiered pricing. Interactive Brokers charges ₹0.04-₹0.30 per share.

• Additional costs: Check beyond basic rates to find currency conversion charges and withdrawal fees. Appreciate shows clear brokerage fees. Some platforms claim zero fees but hide other charges.

User experience and ease of use

The platform's interface can make a big difference to your investment trip:

Interactive Brokers has professional tools that experienced investors love. Vested helps beginners with custom portfolios called "Vests".

Think over these points too:

• Quick account setup - platforms like Appreciate let you start without complex paperwork

• Research tools - look for up-to-the-minute market data and analysis options

• Mobile access - check if desktop and mobile versions work together perfectly

Note that you must pick platforms that follow KYC norms and provide proper documentation. The best apps give you access to major US exchanges like NASDAQ and NYSE to expand your investment choices.

Step-by-Step Process to Start Investing in US Stocks

Starting US stock investments is straightforward when you know the right steps. Here's a simple guide that takes you from setting up your account to making your first investment.

Setting up your investment account

The broker you pick will shape your trading experience. Here are the key factors to think over:

• Trading platform interface - Pick platforms with user-friendly designs that match how you trade

• Regulatory compliance - Go with brokers regulated by SEC or FINRA to ensure maximum security

• Fee structure - Take a closer look at commission rates and any hidden charges

You have options between domestic brokers with US partnerships or direct foreign brokers like Charles Schwab and Interactive Brokers that operate in India.

Completing KYC requirements

The KYC process is simple but needs specific documents:

• Essential documents needed:

  • PAN card for identity verification

  • Address proof (Aadhaar card or bank statement)

  • Tax ID (some brokers require this)

Document verification usually takes 1-3 business days. Many platforms now offer digital KYC processes that can get you approved in as little as 10 minutes.

Making your first deposit

Here's how to fund your US trading account:

1. Convert your INR to USD through your bank

   
   

2. Transfer funds using these methods:

   • UPI for Axis, HDFC, or Federal Bank users

   • Wire transfers for other banks

   
   

Note that the LRS scheme lets you invest up to $250,000 (approximately ₹1.9 crore) each year. Your funds should reach your trading account in 3-5 business days.

Executing your first trade

Your funded account means you're ready to invest:

• Look up your desired stock using ticker symbols or company names

• Place your order with quantity and price details

• Check order details one last time before confirming

While there's no set minimum investment amount, it's good to start with at least ₹5,000 to access better investment opportunities. You can then broaden your portfolio with stocks of all types as you become more confident.

Managing Taxes and Costs When Investing in American Stock Market

"Under the Liberalized Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both." — Reserve Bank of India, Central bank of India

Buying US stocks from India requires careful attention to taxation. Let me get into the financial aspects that affect your returns.

Understanding TCS implications

Tax Collected at Source (TCS) substantially affects money transfers abroad. The government levies 20% TCS on foreign remittances above Rs 7 lakh per financial year. To cite an instance, sending an additional Rs 1 lakh after crossing the Rs 7 lakh threshold means remitting Rs 1.25 lakh because Rs 25,000 goes toward TCS.

The good news is that TCS doesn't add to your tax burden—it's just an advance tax collection. You can adjust this amount against your tax liability during income tax filing or get it refunded if you don't owe any tax.

Capital gains tax for US investments

Your holding period decides the tax rate on US stock investments:

• Long-Term Capital Gains (LTCG): Stocks held longer than 24 months attract 12.5% tax (down from 20% in Budget 2024)

• Short-Term Capital Gains (STCG): Stocks held under 24 months are taxed at your income tax slab rate

The India-US Double Taxation Avoidance Agreement ensures capital gains are taxed only in India.

Dividend taxation and DTAA benefits

US companies hold back 25% tax on dividends paid to Indian investors under DTAA. Notwithstanding that, you can claim this withheld amount as foreign tax credit in India during your annual tax filing.

Here's a practical example: A gross dividend of Rs 8,438 has Rs 2,109 withheld as US tax. If your Indian tax liability on this amount is Rs 2,531, you'll pay just Rs 422 more in India.

Hidden costs to watch out for

Your returns can take a hit from these additional expenses:

• Currency conversion fees (usually 0.75% per transaction)

• Brokerage charges on trades

• Custody fees for keeping foreign securities

• Exchange rate changes that could affect your returns

Smart tax planning helps you maximize returns from US market investments.

Conclusion

US stocks give Indian investors great opportunities to build wealth through global markets. The stable US market attracts investors worldwide with its innovative companies and consistent returns. This makes it a perfect choice to diversify your portfolio.

Your path to US investments needs you to think about several key aspects. The process may look complicated at first, but you'll make better decisions once you understand the LRS guidelines, pick the right investment platform, and handle tax implications properly.

Note that successful US stock investing needs solid research and constant monitoring of your investments. Direct investment through brokers or indirect methods like ETFs can work well - just make sure your strategy matches your financial goals and risk comfort level.

The key is to track any changes in regulations, tax laws, and market conditions. This piece gives you the basics to start building a diverse international portfolio with US stock investments.

FAQs

Q1. How can I start investing in US stocks from India?

You can invest in US stocks from India through direct or indirect methods. Direct methods include opening an overseas trading account with a domestic broker or a foreign broker with presence in India. Indirect methods involve investing in international mutual funds or ETFs that track US market indices. Some popular platforms for beginners include Vested, INDmoney, and Groww.

Q2. What is the Liberalized Remittance Scheme (LRS) and how does it affect US stock investments?

The LRS is a framework introduced by the Reserve Bank of India that allows Indian residents to remit up to $250,000 (approximately ₹21 million) per financial year for various purposes, including overseas investments. This scheme enables Indian investors to participate in the US stock market within the specified limit.

Q3. How are capital gains from US stocks taxed in India?

Capital gains from US stocks are taxed based on the holding period. Long-term capital gains (stocks held for over 24 months) are taxed at 12.5%, while short-term capital gains (stocks held for less than 24 months) are taxed as per your income tax slab rate. It's important to note that under the India-US Double Taxation Avoidance Agreement, capital gains are only taxed in India.

Q4. What are the hidden costs to consider when investing in US stocks?

When investing in US stocks, be aware of hidden costs such as currency conversion charges (typically 0.75% per transaction), brokerage fees for each trade, custody fees for holding foreign securities, and potential impacts of foreign exchange fluctuations on your returns. It's crucial to factor in these costs when calculating your overall investment strategy and potential returns.

Q5. Is there a minimum amount required to start investing in US stocks?

While there's no stipulated minimum investment amount for US stocks, it's generally recommended to start with at least ₹5,000 to access better investment opportunities. Some platforms like Vested allow fractional investing with amounts as low as ₹84, making it possible to invest in expensive stocks with smaller amounts.