Global Opportunities: A Beginner's Guide to US Investing

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An Overview

The US stock market is one of the largest and most diverse markets in the world, offering a wide range of investment opportunities for investors of all kinds. Whether you are looking for growth, value, income, or innovation, you can find it in the US stock market. Investing in US stocks can also help you diversify your portfolio, reduce your exposure to domestic risks, and benefit from the strong performance of some of the world’s leading companies.

Why invest in US stocks from India?

There are many reasons why you might want to invest in US stocks from India. Here are some of the main ones:

  • Access to global opportunities: The US stock market is home to some of the best and most innovative companies in the world, such as Apple, Amazon, Google, Tesla, Netflix, and many more. These companies have a global presence, a loyal customer base, and a strong competitive advantage in their respective industries. By investing in US stocks, you can participate in their growth story and tap into the potential of emerging technologies and trends.
  • Diversification: Investing in US stocks can help you diversify your portfolio across different geographies, sectors, and currencies. This can reduce your overall risk and volatility, and improve your returns in the long run. Diversification can also protect you from the impact of domestic factors, such as inflation, currency depreciation, political instability, or market fluctuations.
  • Higher returns: The US stock market has historically outperformed the Indian stock market in terms of returns. For example, in the last 10 years, the S&P 500 index, which tracks the performance of 500 large US companies, has delivered an annualised return of about 14%, while the Nifty 50 index, which tracks the performance of 50 large Indian companies, has delivered an annualised return of about 11%. Investing in US stocks can help you capture this higher return potential and boost your wealth creation.

How to invest in US stocks from India?

There are different ways to invest in US stocks from India, depending on your preference, convenience, and budget. Here are some of the most common ones:

  • Direct investment: You can invest in US stocks directly by opening an overseas trading account with a domestic or foreign broker. A domestic broker is a broker based in India that has a tie-up with a US broker. A foreign broker is a broker based in the US that has a presence in India. Both types of brokers allow you to buy and sell US stocks online, but they may have different charges, features, and restrictions. For example, some brokers may require a minimum deposit, limit the number of trades, or offer only certain investment options. Therefore, you should compare the brokers carefully and choose the one that suits your needs and goals.
  • Indirect investment: You can invest in US stocks indirectly by buying mutual funds or exchange-traded funds (ETFs) that invest in US stocks or indices. A mutual fund is a pooled investment vehicle that collects money from investors and invests it in a portfolio of securities, such as stocks, bonds, etc. An ETF is a type of fund that tracks the performance of an index, such as the S&P 500, and can be traded on a stock exchange like a stock. Both mutual funds and ETFs offer you exposure to US stocks without having to open an overseas trading account or deal with currency conversion. However, they also have some drawbacks, such as higher fees, lower liquidity, and tracking error. Moreover, some mutual funds may have reached the maximum limit allowed by the RBI for investing in US stocks, and may not accept new investments.
  • New-age apps: You can also invest in US stocks using new-age apps that are designed to make US investing easy and accessible for Indian investors. These apps allow you to invest in US stocks with low or zero commission, fractional shares, curated portfolios, and personalised guidance. They also take care of the regulatory and tax compliance, and provide you with a seamless and hassle-free experience. However, you should also be aware of the risks and limitations of using these apps, such as data security, customer service, and platform reliability.

What are the challenges of US investing from India?

While US investing from India has many benefits, it also comes with some challenges that you should be aware of and prepared for. Some of these challenges are:

  • Currency risk: When you invest in US stocks from India, you are exposed to the fluctuations in the exchange rate between the Indian rupee and the US dollar. This means that your returns can be affected by the appreciation or depreciation of either currency. For example, if the rupee depreciates against the dollar, your returns in rupee terms will increase, and vice versa. Therefore, you should monitor the currency movements and hedge your currency risk if possible.
  • Taxation: When you invest in US stocks from India, you are subject to taxation in both countries. In the US, you have to pay a flat tax of 25% on your dividends and a capital gains tax of 15% on your profits if you hold the stocks for more than one year, or 30% if you hold them for less than one year. In India, you have to pay a tax of 10% on your dividends and a capital gains tax of 20% on your profits if you hold the stocks for more than two years, or 30% if you hold them for less than two years. However, you can also claim a tax credit for the taxes paid in the US, as per the Double Taxation Avoidance Agreement (DTAA) between the two countries. Therefore, you should consult a tax expert and file your tax returns properly.
  • Regulation: When you invest in US stocks from India, you have to comply with the rules and regulations of both countries. In India, you have to follow the Liberalised Remittance Scheme (LRS) of the RBI, which allows you to invest up to $250,000 per financial year in foreign assets, including US stocks. You also have to submit the required documents, such as your PAN card, Aadhaar card, bank statement, etc., to your broker or app. In the US, you have to comply with the Foreign Account Tax Compliance Act (FATCA), which requires you to report your foreign financial assets to the US Internal Revenue Service (IRS). You also have to fill the W-8BEN form, which certifies your status as a non-resident alien and your eligibility for lower tax rates. Therefore, you should be aware of the regulatory requirements and follow them diligently.

Wrapping Up

US investing from India is a great way to access global opportunities, diversify your portfolio, and enhance your returns. However, it also involves some challenges, such as currency risk, taxation, and regulation, that you should be mindful of and prepared for. Therefore, you should do your research, compare your options, and choose the best way to invest in US stocks from India that suits your needs and goals.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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