09 Dec 2022 • 5 min read
Many of us, sitting here in India, wonder if we can own a piece of the behemoths such as Apple, Google, Microsoft, Meta, etc., which have repeatedly proved to be multi-baggers. Adding stocks from the developed markets adds a new flavor and stability to your existing portfolio. Here are ways to invest in US stocks from the comforts of your home in India.
A local broker with ties to stockbrokers in the US or an international broker with a presence in India has two options for opening an offshore brokerage account under direct investments for trading in US stocks.
However, the Indian mutual funds that invest in international schemes typically have higher expense ratios. A management cost for the underlying overseas scheme is charged for the FOF, i.e. fund of funds along with the cost of managing the Indian mutual fund scheme.
Exchange Traded Funds, or ETFs, are similar to Indian mutual funds in that they invest in a set of stocks traded under a single fund. However, unlike the mutual funds available in India, ETFs are traded on exchanges with real-time pricing, much like how stocks are traded. ETFs can also be themed, wherein they tend to gain exposure to specific industries by purchasing an ETF that tracks an industry, such as healthcare or energy. There are ETFs that offer exposure to foreign stocks. They can be considered if you intend on gaining exposure to overseas stocks.
All mutual funds in India registered with the Securities and Exchange Board of India (SEBI) are allowed to participate in the global markets up to a maximum amount of $7 billion. In comparison, investments in foreign ETFs have a maximum cap of $1 billion as mandated by the RBI, i.e. the Reserve Bank of India. All fresh investments in international equities have been suspended from January 2022 since the overall amount of global investments these businesses made crossed the limit of $7 billion. At present, any fresh investments in foreign stocks are paused.
It's also important to know about the RBI's LRS (Liberalised Remittance Scheme) guidelines, which allow resident Indian investors to invest in foreign schemes up to the maximum limit of $250,000 per annum without needing further authorization.
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Taxation and costs are integral to investing, here will look at the different charges and taxes applicable to US stocks.
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Investing in US stocks involves multiple considerations, including currency translation, charges, and taxes. Although it will add an excellent flavor to your portfolio, you must have ample knowledge before indulging in this asset class. Always remember to make informed and well-researched decisions about your investments.