How to buy US stocks from India?
The economy of the United States is undoubtedly the biggest in the world. It owns a few finest of companies like Google, Microsoft, Tesla, Amazon, Apple, etc. In terms of returns in the stock market, these companies give excellent returns. These overseas stocks can be owned by Indian investors too to diversify their portfolio and multiply their returns. There are various ways to buy US stocks from India. In this article we would provide how to buy US stocks like Google, Microsoft, Facebook, Twitter etc., from India either directly by opening an overseas trading account or indirectly through mutual funds.
Can I legally invest in US Stocks from India?
This would be the first question that may come to your mind.
Good news for Indian investors is that the RBI has passed the notification in Liberalized Remittance Scheme (LRS) that allows Indian residents to invest up to $2,50,000 (approx. Rs. 2 crores) in foreign funds without any special permission.
There are 5 International Mutual Funds that gave upto 75% returns in 1 year and investors might get tempted to invest in US Stocks directly or indirectly.
Which are the major stock indices in the US?
We have NSE and BSE in India, where we buy and sell stocks and make investments.
Similarly, in US stock markets too, there are several indices.
Indexes are the strong and powerful indicators for the performance of a specific type of stocks. There are approximately 5,000 stock index that makes up the U.S. equity market.
The top US five indices to watch are:
1) Russel 2000 index
2) S&P 500 index
3) Nasdaq Composite Index
4) Nasdaq-100 Index
5) Dow Jones Industrial Average (DJI)
However, while thinking about investing in the US market, one word that we come across often is ‘FAANG’. Faang is the acronym used to describe major stocks in tech companies. It stands out as – Facebook, Apple, Amazon, Netflix, and Alphabet (formerly known as Google). These five stocks are highly appreciated for their strong performance and dominance in their respective fields. They are also known for their consistent return in the stock market. Recently Mirae Asset has launched NYSE FANG+ ETF and Fund of Fund that invests in this FANG+ group of stocks.
Why should you invest in US Stock markets?
Let us look at the historical performance of NSE and major US stock markets.
i) Since inception – 11% annualised returns
ii) 5 Years – 15% annualised returns
iii) 1 Year – 72% annualised returns
NASDAQ 100 Performance
i) Since inception – 11% annualised returns
ii) 5 Years – 24.25% annualised returns
iii) 1 Year – 48% annualised returns
i) 5 Years – 22% annualised returns
ii) 1 Year – 45% annualised returns
S&P 500 Performance
i) 5 Years – 15% annualised returns
ii) 1 Year – 48% annualised returns
How to buy US stocks like Google, Facebook, Microsoft and Twitter from India?
There are three ways through which the Indian investor can invest in US stocks.
1) Invest directly by opening an overseas trading account with a domestic broker
This is the most convenient method for any Indian retail investor where the Indian brokers act as intermediaries and carry out your trades. ICICI Direct, Reliance Money, 5Paisa, Vested Finance, Kotak Securities are amongst the few Indian brokers who offer overseas trading account. These brokers help you in opening an overseas trading account. Like other things, this method has its own limitations too. Some companies might restrict you in the number of stocks while others can limit your number of trades in a month.
e.g. ICICI Direct offers overseas trading account. They offer two subscription plans i.e. Global Starter and Global Advantage.
Under Global Starter, it offers zero account opening fees, however, charges USD 2.99 per order which is very high. However, you need to pay Rs 999 for 1 year to get this offer.
Under Global Advantage, it offers zero account opening fees and charges USD 0.01 per order. However, you need to pay Rs 9,999 for 1 year to get this offer. Many investors might not be willing to pay such high annual charges.
I am not criticizing the above offers but giving a perspective on transaction charges that can vary based on the investments you are planning to do. Consider these charges and opt for low cost overseas trading account.
2) Invest directly by opening an overseas trading account with a foreign broker
Few foreign brokers have directly opened their companies in India that facilitate the Indian investors to invest in the US market. Indian investors can open their accounts with such stock broking houses. Charles Schwab, Interactive Brokers, TD Ameritrade, International Account, etc. facilitate trading in US securities and mutual funds.
But opening this account with foreign brokers can prove to be a cumbersome task as it requires a lot of formalities and documents to be submitted. Moreover, brokerage and Currency Exchange Costs are also needed to be kept in mind which takes the cost of investing quite high.
I would recommend avoiding this approach unless you see low transaction charges offered by any such foreign broker.
3) Invest indirectly through domestic mutual funds
Many mutual funds in India directly invest in international stocks. The investor can buy US ETFs / Mutual Funds from a foreign or domestic broker, or an Indian ETF that tracks international indices. Here are some of the domestic mutual funds that invest in US Stock markets. This list is just a sample and not comprehensive list.
i) Motilal Oswal NASDAQ 100 ETF
iii) Mirae Asset FANG+ ETF (a New ETF that came last month)
iv) Mirae Asset FANG+ Fund (New Fund that came last month)
v) Parag Parikh Flexicap Equity Fund
This is the most cost-effective way of investing in the US stocks as the investor is not asked to maintain a minimum balance and transaction charges are known to customers. I would recommend investors go with this method which is easy, simple and low cost model.
Factors to keep in mind before investing in the US market
Here are few things you should keep in mind if you are planning to invest in US stocks.
1) If you wish to invest in US-listed companies or stocks directly, you will have to pay in US dollars. You are not allowed to invest in the Indian currency.
2) There is an agreement between India and the United States of America that defers the practice of double Tax which means that the same income cannot be taxed twice. This agreement is known as the Double Tax Avoidance Agreement (DTAA).
3) It is not necessary to buy the shares in whole numbers. One can buy shares in fractions also like one can buy half a share of any company. E.g. You can buy 1.5 shares or 20.5 shares of a company.
Conclusion: Investors can diversify their portfolio by investing some portion in US stocks. Now, an average investor too can think of investing in the US economy. The above methods have their pros and cons. The stock markets have become highly volatile, and the investor carries a heavier risk. The cost of investing is also high. So, keep all the factors in mind before jumping into the US stock market.
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