Indian investors looking to diversify their portfolios beyond Indian equities like the Sensex or Nifty 50 can do so by investing in the S&P 500, Dow Jones, Nasdaq, or other US-listed companies.
Under the RBI's Liberalized Remittance Scheme (LRS), Indian investors can invest in US stocks or ETFs by entering the purpose code S0001.
Investing in foreign equities is a new trend that has attracted investors from all around India. There are various advantages to this, one of which is the high return. It does, however, come with several drawbacks, including expensive brokerage fees.
How much can Indian investors buy International or foreign stocks?
Indian brokers such as HDFC Securities, Motilal Oswal, and Geojit, as well as fintech platforms such as Stockal, offer comprehensive US investment services. While you may invest a lot of money in US stocks, keep in mind that the Reserve Bank of India has set a limit of $250,000 for Indian residents.
The Reserve Bank of India (RBI) authorises an individual Indian citizen to send $250,000 every financial year to the United States. With the current rate of exchange. This sum turns out to be in the billions of rupees. If you have two family members, you can invest a total of $250,000 ($500,000).
Prepare to pay a lot of money: You will be dealing with foreign currencies if you want to invest in other countries. If you want to invest in the US stock market, you must now pay fees and brokerage in US dollars.
Direct Investment In US Stocks
Process of Investing in Foreign Stocks:
The first step is to register for an account online once you've found the best brokerage account in India for buying US stocks. It's a straightforward, and quick procedure.
Step 1: To invest in the international stock market, you must first open a trading account with a brokerage firm that offers abroad trading services. There are only a few well-known brokerage firms that offer foreign trading services.
Step 2: Submit a separate account opening form with all required information, as well as know your customer (KYC) papers.
Step 3:You must transfer funds to the local equity broker's overseas partner, through whom the service is supplied.
Step 4: Submit LRS application and declaration forms.
Step 5: Fill Form A2 (That is available with your broker)
Step 6: Sign a declaration form under the Foreign Exchange Management Act (FEMA).
Authorization form for the specified bank branch to act as an approved dealer.
You can now use an internet marketplace to buy and sell international equities.
Investing through Mutual Funds
Investing in international funds (funds of funds) has a set of benefits. For starters, you don't need a Demat account or a trading account. Two, investing is simple since the investor does not need to open an international account or be concerned about currency fluctuations. Three, you won't have to worry about exceeding your investment limit because there is an annual limit if you invest directly through the LRS.
This is the simplest way to invest in international equities. The most significant benefit of investing in mutual funds is that you do not need to open an international account. Investing in mutual funds/ETFs is also less expensive than investing directly in foreign stock markets.
Investing through ETFs
A Demat and trading account are required for ETFs. The simplest and most straightforward approach is to invest in companies based outside of India through feeder or funds of funds. In this route, they also offer index funds that invest in foreign indexes such as the S&P 500, NASDAQ, Russell, Dow Jones, and so on. You can also invest in gold, commodities, technology, energy, and resources funds, which are all differentiated by geography. Because many mutual funds already have different themes, an investor does not need to be concerned. It's as simple as investing in any domestic mutual fund.
Tax Implication for these investments
This profit will be taxed in India. In the United States, no taxes will be withheld. The amount of taxes you must pay in India is determined on the length of time you retain the investment. The long-term capital gain threshold is 24 months, at a rate of 20% with an indexation advantage. Capital gains are deemed short-term if you sell a stock in less than 24 months and are taxed according to your income tax bracket. Dividends, unlike investment profits, will be taxed at a fixed rate of 25% in the United States. Fortunately, the United States and India have a Double Taxation Avoidance Agreement (DTAA) that permits taxpayers to deduct income tax paid in the United States. The 25% tax you already paid in the United States is available as a Foreign Tax Credit, which you can use to offset the income tax you owe in India.
There are online platforms that allow you to invest directly in overseas stocks, but keep in mind that it is not always straightforward due to a variety of factors. For starters, all of these stocks are valued in US dollars. The dollar becomes exceedingly expensive when converted into Indian rupees.