Putting money into stocks is one of the mindful ways to make your money grow over time. However, when it comes to investing in international stocks from India, the process can seem daunting. With so many regulations to consider, it’s easy to feel overwhelmed.
But fear not! With the right strategy, investing in international stocks can be a profitable and rewarding experience.
“The key to making money in stocks is not to get scared out of them,” said Peter Lynch, a famous investor.
This is especially true for stocks in other countries. Even though it might seem risky to invest in a foreign entity, wanting to add international stocks to your portfolio can help reduce risk and maybe even increase returns.
We will look at detailed information on the aspects by which you can invest in international stocks from India, including direct investments, mutual funds, and exchange-traded funds (ETFs).
We’ll also cover some of the factors to consider before investing, such as currency risk, tax implications, and geopolitical issues.
By the end of this blog, you will have a better understanding of how to invest in international stocks from India and be informed about investment decisions. Remember, investing is a long-term game, and the key to success is to stay calm and stay invested.
Why invest in US Stocks from India?
One of the most prominent ways to make money is to invest in stocks. With the advancement of technology and globalization, investing in the US stock market is now accessible for Indian investors.
This article will explore why it is beneficial to invest in US stocks from India.
Investing in US stocks allows Indian investors to diversify their investment portfolios. Diversification is essential in investing because it reduces risk. The US stock market is the most extensive stock market in the world, with companies across different sectors. Investing in US stocks can help to balance the risks associated with investing only in Indian stocks.
#2 Strong Economy:
The US is the world’s largest economy, and its stock market is the most significant market by market capitalization. Investing in US stocks from India can provide exposure to a strong economy and its growing companies.
Many of the world’s leading companies, such as Apple, Amazon, and Microsoft, are based in the US. These companies offer opportunities for long-term investments that can help generate high returns.
#3 Ease of Investing:
Investing in US stocks has become more accessible for Indian investors. There are several online brokers available that allow investors to trade in US stocks from India.
These brokers provide easy access to US stocks, and investors can easily track their investments and trade them quickly.
#4 Currency Hedge:
Investing in US stocks can provide Indian investors with a hedge against currency fluctuations.
People look to the US dollar as a safe source to invest their money. As a result, investing in US stocks can provide a hedge against currency fluctuations and protect Indian investors against a devaluing Indian rupee.
4 Ways to Invest in US Stocks
The five most common ways to invest in US stocks from India are as follows:
#1 Direct Investing:
Direct Investing involves buying individual stocks of US companies from Indian brokerage firms or directly from US-based brokerage firms.
Some examples of Indian companies that offer Direct Investing services are ICICI Direct, HDFC Securities, Kotak Securities, and Axis Direct.
#2 Mutual Funds:
Investing in US stocks through mutual funds is a popular option in India.
These funds pool money from various investors to purchase stocks of US companies. Some Indian companies that offer mutual funds for US stocks include
- FRANKLIN INDIA FEEDER – FRANKLIN U.S. OPPORTUNITIES FUND
- DSP BlackRock
- Reliance Mutual Fund
- Parag Parikh MF and more
#3 Exchange Traded Funds (ETFs):
ETFs are similar to mutual funds but are traded on stock exchanges.
These funds invest in US stocks and can be bought and sold like individual stocks. Indian companies such as Motilal Oswal and Edelweiss offer ETFs that invest in US stocks.
#4 American Depository Receipts (ADRs):
ADRs are issued by US banks that represent ownership in the shares of a foreign company.
They are traded on US stock exchanges and can be bought and sold like regular stocks. Indian companies like HDFC Bank and ICICI Bank offer ADRs of US-based companies such as Amazon and Google.
Challenges while investing in US stocks or abroad
There are various challenges that investors face while investing in the stock market discussed as follows:
One of the significant challenges of investing in the stock market is the volatility of the market. The stock market is highly volatile, and prices can fluctuate rapidly, making it challenging for investors to determine when to buy or sell stocks.
The market can experience sudden price changes due to a wide range of factors such as economic and political events.
Another challenge that investors face when investing in US stocks or abroad is currency risk. When an investor invests in stocks abroad, they expose themselves to the risk of currency fluctuation. If the value of the foreign currency rises, the investor may gain more than they invested. However, if the value of the currency drops, the investor may suffer a loss.
Regulations in the US and abroad can be challenging for investors. Different countries have different rules and regulations, which can be complex and confusing for investors. Moreover, regulations in the US and other countries can change, making it difficult for investors to keep up with the changes.
Political and Economic Risks
Investing in US stocks or abroad can expose investors to political and economic risks. These risks can arise from changes in government policies, political unrest, and economic instability. Political risks can create uncertainty, leading to a decrease in demand for stocks, which can affect investors negatively.
Lack of Information
Lack of information is another challenge that investors face when investing in US stocks or abroad. It can be challenging for investors to gather information about the company they intend to invest in, especially if they are not familiar with the country. Moreover, it can be challenging for investors to access reliable information about the stock market, making it difficult for them to make informed decisions.
In case you are planning to travel abroad check Top Forex Cards in India
How to invest in international stocks from India
Step 1: Choose a broker:
The first step in investing in international stocks is to choose a broker who offers international trading. There are several online brokers that offer this service, including ICICI Direct, HDFC Securities, and Kotak Securities. Look for a broker that offers a user-friendly platform, low brokerage fees, and good customer service.
Step 2: Open a trading account:
Once you have selected a broker, the next step is to open a trading account. This involves filling out an application form and submitting some supporting documents, such as a PAN card and proof of address. You may also need to complete a KYC (Know Your Customer) process, which involves verifying your identity.
Step 3: Fund your account:
After opening a trading account, you will need to fund it with money that you can use to buy international stocks. You can do this by transferring money from your bank account to your trading account. Most brokers offer several payment options, including net banking, debit card, and NEFT.
Step 4: Research international stocks:
Before investing in international stocks, it’s essential to do your research. This involves identifying companies that are likely to perform well in the future and analyzing their financial statements and other key metrics. You can use online resources such as Yahoo Finance, Google Finance, and Bloomberg to find information on international stocks.
Step 5: Place your trades:
Once you have identified the international stocks you want to invest in, the next step is to place your trades. This involves entering the symbol of the stock you want to buy, the quantity, and the price. You can either place a market order (where you buy the stock at the prevailing market price) or a limit order (where you specify the price at which you want to buy the stock).
Step 6: Monitor your portfolio:
After investing in international stocks, it’s important to monitor your portfolio regularly. This involves tracking the performance of your stocks, reviewing your portfolio allocation, and making adjustments as necessary. You can use your broker’s trading platform or other online tools to monitor your portfolio.
Taxes on Investment in US Stocks
- Indian investors who invest in US stocks may be subject to taxes both in India and the US.
- The US taxes foreign investors on their income from US investments, including stocks, at a rate of 30%.
- Indian investors are also required to pay taxes on their capital gains from US stock investments, which are subject to long-term and short-term capital gains tax rates in India.
- The tax implications of investing in US stocks from India depend on various factors such as the type of investment, duration of investment, and the investor’s tax status.
- To avoid double taxation, Indian investors can claim a tax credit for the taxes paid in the US against their Indian tax liability.
- Investors can also explore tax-efficient investment options such as exchange-traded funds (ETFs) or mutual funds that invest in US stocks.
- It is essential for investors to understand the tax implications of investing in US stocks from India and consult with a tax expert to optimize their tax liabilities.
What are the expenses associated with purchasing US stocks?
Bank charges: The bank charges for purchasing US stocks from India can vary depending on the bank and the type of account you have.
Foreign exchange fees may cost you 4-5 percent of the amount you invest (spread + commission + GST).
Conversion rate: One of the major expenses associated with purchasing US stocks from India is the conversion rate.
Since US stocks are denominated in dollars, Indian investors will have to convert their Indian rupees to dollars to buy these stocks.
This conversion rate varies based on the prevailing exchange rate and can result in additional expenses.
Brokerage fees: Indian investors will have to pay brokerage fees to the broker who facilitates the purchase of US stocks.
The brokerage fees may vary depending on the broker, and investors should compare the fees charged by different brokers to ensure that they get the best deal.
Some firms may charge a flat fee for each trade, while others may charge a percentage of the total transaction amount.
Taxes: Indian investors will have to pay taxes on the profits earned from the sale of US stocks. These taxes will depend on the type of investment, the duration of holding, and the prevailing tax laws.
Your investments in US equities fall under LRS. Effective from October 1, 2020, a 5% TCS (Tax Collected at Source) is added to all LRS transfers of more than Rs 7 lakh.
It is advisable to consult a tax expert to understand the tax implications of investing in US stocks.
As the famous saying goes, “the world is a global village,” and investing in international stocks allows us to be part of this global community, leveraging opportunities and benefiting from the gains of other markets.
The world’s economy is interconnected, and investors must diversify their investments beyond their local markets to reap the rewards of global investment. With proper research, knowledge, and expert guidance, Indian investors can take advantage of global opportunities and achieve their long-term financial goals.
In conclusion, investing in international stocks from India is no longer a far-fetched idea, thanks to technology. By following the necessary steps outlined in this article, Indian investors can access a broad range of global investment opportunities, diversify their portfolios and potentially maximize returns. It is vital to understand the risks associated with international investing.
Can I invest Rs 100 in US stocks?
While some brokerages may allow small investments, typically the minimum investment amount for US stocks is higher than 100 rs.
How can I buy Tesla stock in India?
To buy Tesla stock in India, you will need to open an account with a brokerage firm that offers access to international markets, such as the US stock market. You can then place an order to purchase Tesla stock through the brokerage’s trading platform.
How can NRI buy US stocks?
NRIs (Non-Resident Indians) can buy US stocks by opening an NRI account with an Indian brokerage firm or by opening an international brokerage account. The process and requirements may vary depending on the specific brokerage firm and country of residence.
Can Indian companies invest in US stocks?
Yes, Indian companies can invest in US stocks by opening an account with a brokerage firm that offers access to international markets. However, there may be specific regulations and restrictions that need to be followed.
Can I buy US stocks without a broker?
No, you cannot buy US stocks without a broker. A brokerage firm is required to facilitate the purchase of stocks and provide access to the stock market.
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