Investing in foreign stocks has been permitted by the Reserve Bank of India since 2003. Since then the ceiling on annual investments and the range of financial products residents of India can invest in have increased multifold. Indian residents can invest in foreign stocks, mutual funds, insurance policies etc. up to USD 250, 000. For Indian residents the US equities market is prized for its volume of first of its kind tech companies, cryptocurrencies, NFTs that have earned legendary returns for early investors.
How Do You Invest in the US Equity Markets?
Investing in the US stock market has now been made hassle free with a bulk of your diligence and paperwork being managed by intervening brokerage firms. There are broadly two ways to go about investing in the US stock market.
You can invest in US equities directly through a domestic or foreign broker. A domestic brokerage firm that has partnered with a foreign broker or a foreign broker with offices in India will be able to assist you with setting up an overseas trading account, executing orders, and redemption requests along with guiding you through compliances associated with foreign investments. There are several trusted Indian brokerage entities that facilitate investments abroad through safe and transparent processes. Once you register with a domestic or foreign broker, your banking partner will require an A2 form which is an application cum declaration for the drawal of foreign exchange. Your banker must allow foreign remittances to be linked to your overseas trading account.
If gaining exposure to foreign companies is the goal, you can achieve this by investing in International Mutual Funds that invest in foreign companies located in different parts of the world. Investments in Global Mutual funds or Exchange Traded Funds can be executed directly through your demat account or through an Asset Management Company that will facilitate the transaction for you.
Keep in Mind
When investing in US stocks through a foreign or domestic broker, be wary of the bevy of charges that come attached to it. Opening an overseas trading account, currency conversion and brokerage can eat into your profits. The high returns from US stocks may be offset by applicable domestic taxation liabilities. For sale of stocks held outside India for more than 24 months long term capital gains tax is payable at 20% plus surcharge and cess. If the stocks are held and sold for less than 24 months, the capital gains are added to your annual incomes and taxed as per the applicable tax slab. In case of tax paid on dividends earned on US stocks, the same can be reclaimed in India due to the Double Taxation Avoidance Agreement executed between the two countries.
Investing in foreign stocks and equities has been streamlined due to the entry of competent Indian brokerage houses that manage transactions. What investors need to be mindful of is the quantum of charges, especially foreign currency conversion, that influence your holdings and profits earned from stocks owned in foreign markets.