The USA is home to some of the largest and most successful companies in the world. Surprisingly, barring Saudi Arabian Oil Company-Saudi Aramco, the US is home to all the trillion-dollar companies in terms of market capitalization. That is why most investors seek to include US stocks in their portfolios.
However, very few know the route to investing in US stocks from India. That is because, primarily, investors can invest in the companies listed on the Indian stock exchanges like National Stock Exchange (NSE), Bombay Stock Exchange (BSE), etc. US companies usually are not listed in the Indian stock exchanges. Therefore, Indian investors prima-facie assume that investment in US companies is not possible. Here, we will clear out all such misconceptions and discuss the perks of investing in US stocks from India.
How to invest in US stocks from India?
Investment in US equity can be made in either of the two ways:
- Direct investment: Here, investors can directly invest in US equity if they are well-versed with stock market investments. Direct investments in equity stocks are beneficial for people who know how to evaluate a stock to decide whether it is worth investment.
- Indirect investment: Here, you can invest in an Indian mutual fund that further invests in US equities. It is an indirect method and beneficial for novice investors who do not have adequate knowledge and experience in stock market investment or don’t have sufficient time to perform analysis before investments.
Here are a few ways to invest in US stocks from India.
- Investment through apps: App-based investment has gained popularity amongst investors.These apps provide necessary support at minimum cost.
- Through an Indian broker who has tied up with a foreign broker: Many large broker firms like ICICI Direct, HDFC Securities, Motilal Oswal have tie-ups with international brokerage firms who help Indians invest in US stocks.
- An account with a foreign broker: There are brokerage firms that have offices in India where you can walk in and open an account for investing in foreign equities, including those listed on NASDAQ and NYSE.
- Through MFs and ETFs: There are Indian Mutual Funds like ICICI Prudential US Bluechip Equity Fund, Nippon India US Equity, etc. who invest in US stocks or US ETFs like Vanguard Russell 1000, Invesco QQQ, etc. in which you can directly invest through apps like INDmoney.
Investing in US stocks is not a difficult task. The foremost concern of any Indian investor who wants to invest in US stock from India is the massive transaction cost and hefty fees charged for foreign investments. However, the reality is a bit different.
Here are few things you need to know before you start investing in US Markets:
1. Selecting the right stock broker
With the right broker, one can manage most hassles and formalities conveniently. However, it is pertinent to note that not all stockbrokers service investment in foreign equities. Thus, one needs to search for the right stockbroker.
2. Fulfill basic formalities
There are no additional formalities when investing in US equities. Standard formalities like KYC verification and opening of Demat Account suffice. The Liberalized Remittance Scheme of the Reserve Bank of India allows a resident in India to invest in foreign securities up to a limit of $2,50,000 without special permissions. With digitization, you can complete all online formalities and open a Demat account within minutes. After this step, you can begin to invest.
3. Fees and transactions costs
Investing in foreign securities means international transactions. You need to pay bank charges, brokerage charges, withdrawal charges, transaction charges etc. when you make investments in US markets. However few platforms provide opening a Demat account free of cost with no investment commission, thereby saving extra investment expenses.
4. Minimum investment
Stocks listed in the American stock market are usually high-value stocks listed in dollars; therefore, a single stock costs much more due to the Indian and American currency differences. However, few platforms facilitate investing in fractional shares, thereby eliminating a minimum investment in any US stock. You can purchase even 0.00001 shares in any company.
Further, let’s discuss the benefits of investing in the US stock market.
Benefits of investing in the US stock market
1. Geographical & Currency Diversification
In 2011, the average USD-INR exchange rate was around INR 47. In 2020, the exchange rate was around Rs. 74, indicating an investor would have gained 36% simply through currency gains. This growth is in addition to the gains seen by US stock markets.You also get geographical diversification which protects your investments against any turmoil in the local economy. Thus, US stocks could be a great addition to your portfolio.
2. Compound growth
If we compare S&P 500 (major US Index), NASDAQ (major US index) and NIFTY 50 (major Indian index) the US indices have consistently outperformed the Indian index over the last 10 years. S&P 500 gave a CAGR return of 20.13%, Nasdaq gave a massive return of 27.87% while Nifty gave a return of just 12.79%. Thus, investing in US markets could give your portfolio some extra returns.
Most hyper growth companies such as Facebook, Amazon, Apple, Netflix, Tesla, Google etc. are listed in US markets and are working on technologies of the future & hence are expected to continue on this growth trajectory.
The US is an attractive economy for stock market investment and investing in US equities is easy. You only need to open a Demat account and start investing.