As per the regulations laid down by the Reserve Bank of India (RBI) under the Liberalised Remittance Scheme (LRS), an Indian resident can invest up to $250,000 (1.8 crores) per year in foreign stocks without approval. But before trading in US stocks, there are a few things to note, such as reporting the RBI of the transaction, altering exchange rates, varying taxation requirements, and so on and so forth.
To begin with, the US stock market has unceasingly performed better than the Indian markets over the last ten years, in terms of dollars. US Indices have shown less volatility. Many American equities are genuinely global corporations, providing a more diversified and risk-adjusted portfolio and finally, the fascination to bet on creative tech businesses like Amazon, Apple, or Netflix, which appear to be all around and at all times are a few reasons as to why one wouldn’t want to trade US stocks from India.
4 Ways to trade US Stock Market From India
One can trade in the US stock markets either directly or indirectly. Direct investment involves buying US stocks through international as well as domestic brokerage firms. Whereas indirect investments include investing in Exchange Traded Funds (ETFs) and mutual funds that cover various industries and asset classes. Investments in US stocks from India can be done in the following 4 ways:
- Directly opening a foreign trading account with a domestic broker: an investor can open an overseas trading account with Indian brokers which have tie-ups with US brokers. These brokers function as mediators in international marketplaces, executing trades on behalf of the investor.
- Opening an Offshore trading account with foreign brokers: International brokers with a presence in India, such as Interactive Brokers, TD Ameritrade, and Charles Schwab can also be used to open a trading account. Account opening can be done online by filling out some very basic information like name, contact number email ID etc. To avoid any kind of legal issues, an investor is required to submit documents as proof of identity, address, taxation, and bank details. One must also be mindful of the regulations and varying exchange rates which can affect the overall investments.
- Mutual fund investments: Investing in mutual funds that put the money in US stocks is another way to invest in overseas equities. Possibly this is the simplest way to invest in international stocks because it does not necessitate the opening an offshore trading account or even maintaining a hefty minimum deposit. This method, however, can be more expensive. One should keep in mind that the fees charged to operate the fund are often higher because the fee covers both general fund management and an additional expense levied by the underlying overseas schemes they invest in.
- Buying Exchange Traded Funds (ETFs) is another way to trade US stocks from India. To gain exposure to a plethora of international stocks, investors can purchase ETFs of international indexes. SEC-registered investment consultants in the United States, for example, Vested offer Indian investors equities, exchange-traded funds (ETFs), and custom-made portfolios commonly known as “vests”.
From a wider investment perspective, one can invest in the overseas market. An investor can invest in his/her favorite company without any restrictions. Furthermore, in the age of the internet, investing in the worldwide market is not difficult. One major benefit of trading US stocks from India is that it aids in portfolio diversification. Higher expenditure charges and currency exchange rates, on the other hand, are stumbling blocks. One must also be mindful of a few restrictions relating to the number of intraday trades in the US market from India, minimum capital requirements and investment options available to the investors.