In this article, I will show the readers how to invest in the US stock markets, i.e. NYSE and NASDAQ, while sitting in India. Now the investment process is the same as any other stock market, but there are a few steps that need to be taken before you can actually invest in the US stock markets.
There are a couple of reasons why an investor likes to invest in foreign markets such as the US. NYSE is the biggest market on the planet when it comes to the total market cap of its companies. So naturally, US markets are more stable and provide steadier returns. Foreign investments are also done in order to diversify an investor’s portfolio.
In this article, I will tell a few things an investor should keep in mind before investing in American stock markets. Let us start with the topic then.
Who can Invest?
Any Indian resident willing to go through the steps mentioned below and who wants to invest in foreign bourses can invest in the US stock markets. Do read the rules and regulations of the LRS beforehand.
How to Invest?
Well, there are a couple of ways to invest, and I’ll just classify them into 2 categories – Direct and Indirect.
Direct investment includes investment directly into equities listed on the US stock exchanges. One can also invest directly in Exchange Traded Funds (ETFs). ETFs are like mutual funds but can be traded like a stock.
Indirect investments include investing in Mutual Funds that invest in foreign equities or foreign mutual funds. This way is easier mostly because of the passiveness. An investor just needs to invest and can do without managing it every day. You should have proper knowledge of the stock market, and if you don’t have it then, there are many stock market courses available in the market that will help you in the long run.
A real big advantage of investing in the US stock exchange is that an investor need not buy the whole share. Yes, you got that right. An investor can just buy a fraction of the share if he/she wishes to. Although the fractional shares do not have voting rights, and the dividends are distributed in the proportion of the fraction that is owned.
What is the Tax Structure?
There is no income tax implied on capital gains for anyone who is not a citizen of the US. Although an Indian resident will have to pay tax for their gains depending on the duration of their investment – Long term or Short term.
An Indian investor who is investing in the US stock market will pay a flat 25% as tax on his/her dividend earnings, in such a way that the investor will receive 75% of the original dividend. So the 25% is deducted before distributing the dividend.
Tax Collected At Source (TCS) is 5% on all remittances above ₹700,000 under the LRS.
3 Steps an investor needs to follow to start investing in the US stock markets:
1. Open an Overseas Trading Account
The first step to investing is opening a Demat account, and in this case – an overseas trading account. Opening an overseas trading account is really simple. You can choose from a number of foreign brokerages that are in India. You just need to register with them (Online), and your account will be created. You will be required to submit an ID proof with a photo and address proof.
After that, you will simply add funds to your account and start trading. But before that, you need to go through the rules and regulations imposed by the RBI, which are covered under Liberalised Remittance Scheme (LRS). Under LRS any resident can remit up to $250,000 in a financial year.
2. Make a Portfolio and Diversify It
The best way to start investing is to make a portfolio based on your requirements and needs. Analyze your requirements and then choose from the wide sea of securities, 10 securities that match your requirements. Observe these shares on a daily basis. This will keep you updated on the happenings of the market.
I would also suggest that observe the US stock markets in general before investing money in them, as it can have a huge effect on your investing decisions.
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3. Invest your Money
Once you have studied your portfolio and the market, you may go ahead and start investing your money in it, if the market is in a stable condition. But do make sure to keep yourself updated on the portfolio in case you need to make changes to it.
Invest smartly, as in do not go with the flow and stick with your portfolio. Investors tend to gravitate towards what is “hot”, rather than what they actually require. Also, give your investments time to bear fruits. Patience is really important when it comes to investing.
So these were some things to keep in mind before investing in the US stock markets. I would like to suggest some good stock market courses that provide insight into stock markets.