Over the last decade, investors have exhibited a growing interest in overseas stocks, particularly US markets. This is mainly because a handful of US technology firms’ stocks have skyrocketed in recent times, beating rivals, including the best-performing Indian stocks.
Some of the newer brokerage platforms that are now offering worldwide investing services have made it easy for the investors to easily access a wide range of asset classes, including global stocks, global bonds, and treasury bonds. To invest in US stock you need a demat account along with a trading account.
Need to trade US stocks from India
According to the analysts, Indians’ desire to trade in US stocks originates from their growing awareness of the need of maintaining a globally diverse portfolio for long-term growth in wealth. They want to invest in worldwide brand firms and hold shares of brands which they know and use on a daily basis.
As stated by financial experts “By having a well-diversified portfolio across three primary pillars, i.e., class of asset, industry, and time, the investors in India have been largely benefited”. The fourth and the most crucial one being portfolio diversification across geographies. This has progressively gained a lot of momentum in recent years, primarily because it eliminates the danger of a “single nation, single currency” portfolio.
What to trade in??
Few brokerage houses allow investing in shares of companies listed on the US stock exchanges, ETFs, and few listed fixed income securities. While a few others may allow investing in equities listed in Nasdaq only.
The demand for global stocks from India has always been there largely because Indians are consumers of a large number of multinational corporations. As a result of technological upgradation, Indians today have simple and cost-effective ways to invest in worldwide markets. The ability to invest in fractions is one of the major game changers that has resulted in investors starting to invest with as low as $1 and become shareholders in their desired companies . One must also be aware of the fact that intraday trading in US market from India is not allowed to the Indian investors.
The Reserve Bank of India (RBI) currently forbids derivatives investments because funds coming from the Liberalised Remittance Scheme (LRS) cannot be used to invest in speculative products. Moreover, Indians cannot participate in US initial public offerings (IPOs) as of now.
Documentation: To trade in US stocks from India can be done through the website of the brokerage platforms or by downloading their app. The succeeding step is to open a brokerage account in the United States. This entails answering a series of simple questions as well as submitting a government ID (for example, a PAN card) and evidence of address. Following that, the USD will be deposited to their respective accounts.
Limit of investment: Under the Reserve Bank of India’s (RBI) liberalised remittance scheme (LRS) each individual is allowed to legally invest up to $250,000 abroad each year. The money is required to be transferred through an Indian bank. Once the USD (funds) have arrived, it is possible to buy and sell without paying a commission. The USD can also be kept in the investors’ bank account as cash. A withdrawal can be requested when one decides to pull out their money back, and the money will then be sent to their Indian bank account.”
Fees for processing: This may differ from one platform to another as they generally provide a basic scheme and premium scheme. Investors can obtain extra services and benefits by paying fees under the premium plan.
Many Indian investors venture in multinational MNCs because they believe MNCs have superior levels of governance, technological proficiency, and transparency. Investing in Indian subsidiaries, is comparatively, a more expensive prospect. Investing in Indian subsidiaries vs investing directly in the parent firm in the US, investors from India pay 3 times higher on an average. Moreover, returns are fairly comparable despite paying substantially higher charges.