At Vested, we believe that the economy is global and connected. As such, it is important that your investment portfolio be global as well. One way to increase your portfolio diversification is by investing in US shares.
We created this guide especially for you, the Indian investor, to help you better understand how to trade in us stock market from India After reading this, you will understand:
How to invest in U.S stocks (and why we believe Vested is the best choice)
Good things to know when investing in the U.S stock market
Why it may be a good idea to invest and diversify in the U.S stock market
Popular terms used when discussing the U.S stock market
Can Indians Invest In The U.S Stock Market?
Yes – investors from India can invest in the US stock market. If they are interested in diversifying beyond Indian stocks and financial instruments, beyond the Sensex or the Nifty 50, Indian investors can do so by investing in the S&P 500, Dow Jones, Nasdaq or other US listed companies.
Investing in US stocks or ETFs by Indian investors is permissible under the RBI’s Liberalized Remittance Scheme (LRS), by using purpose code S0001 (fun fact: you can also open US bank accounts under this purpose code). Read more about the LRS and US investing.
1. Superior returns compared to India
The US stock market consistently outperforms the Indian market over the last 10 years. InFigure 1, we compare returns of the DOW Jones Index in the US to the BSE Sensex. During this time period, the DOW returned 196%, while the SENSEX returned 150% (note: we picked the DOW index rather than the S&P 500 index because the DOW is more similar in number of constituents to the Sensex both have 30 companies).
Figure 1: Returns comparison between the Dow Jones index vs. the Sensex.
In addition to equity returns, the savvy investor should also think about the effect of currency fluctuations between INR and USD.ÂIn the past 10 years, the Rupee has depreciated 44% compared to the USD. This has a significant negative impact towards returns of Indian stocks widening the performance gap. Read more about why investing in the U.S stock market has offered superior returns.
Figure 2: INR to USD exchange rate from the last decade – INR has depreciated by more than 44% in the past decade.
Investing in the US can be an easy way to invest in other international markets. For example, you can easily invest in the Chinese economy through investing in the US market. The fast growing Chinese economy – driven by a growing middle class and rapid technology adoption – has led to the creation of some of the world’s leading technology companies. However, instead of going public in China, more and more of these Chinese technology companies are choosing to list in the US. Furthermore, there are ADRs (American Depository Shares) of Chinese companies that enables USD based buying and selling, where the underlying shares are held by multinational Banks or Brokers.
Figure 3: IPOs of Chinese companies in the US.
For Indian investors, another benefit of investing through the US stock market is that the ecosystem is very well regulated, with strict controls on financial reporting, transparency, and standardized governance practices, making it easier for the investors to evaluate the different opportunities. Read More how investors gain exposure to Chinese growth.
3. You can Invest in MNCs directly rather than the local Indian subsidiary
Many investors living in India invest in international MNCs because they assume there is a higher level of governance, technological proficiency and transparency in MNCs. However, investing in Indian subsidiaries is often a more expensive proposition. We studied 16 MNCs that are traded in reputable US exchanges and that have Indian subsidiaries that are also publicly traded in India.
On average, investors from India are paying ~3X higher multiples (P/E trailing twelve months) when investing in the stock for the Indian subsidiaries vs. investing directly in the parent company in the US (buying the US shares of the parent companies). And despite paying significantly higher multiples, the average returns can be similar. The average 2019 returns of the US parent companies was ~14% (blue line inFigure 4), while the average returns of the Indian subsidiaries was ~17% (orange line inFigure 4).
Figure 4: Average 1 year return of US parent companies (blue) vs. Indian subsidiaries (orange). The grey lines represent the returns of the individual entities over the past year.
To learn more about investing in MNCs through Indian subsidiaries. Please note that past historical data does not guarantee future performance.
Given these reasons, savvy investors from India may want to consider investing in the US. Your next question might be – how can one invest in the US from India?
How Can I Invest In The U.S. Stock Market from India?
What are the different ways I can invest in the US stock market?
You can invest directly by opening a US brokerage account
Vested offers a unique platform that caters specifically to investors from India, with no minimum balance and commission-free investing. Furthermore, unlike most brokerage account opening processes in India, Vested’s process is completely paperless and can be completed in minutes. You will need your PAN number, an image of your PAN card, and proof of address. To open an account with us, sign up. The brokerage approach typically involves overall lower costs for the investor, but requires you to wire funds to the US. As an Indian resident, you are allowed to do this per the Liberalized Remittance Scheme (LRS), where you are allowed to invest up to US $250,000 per year per person.
Invest in US focused International Mutual Funds in India
Unlike the brokerage method, there is no investment limit for residents of India, as investments are made within India using Rupees. However, this approach can be more costly. You must keep in mind that the expense ratio (fees charged to manage the fund) for these funds tend to be higher since the fee is for both the general management of the fund plus an additional expense charged by underlying international schemes they invest in. For example, the Franklin Templeton feeder fund in India invests in the Franklin Templeton US Opportunity fund. The Feeder fund charges 1.54% expense fee, which is on top of theÂ1.82% fee charged by the underlying US Opportunity fund Â(see the fine print at the bottom of fund prospectiveÂ).
How are Indians taxed for their investments in the US stock market?
When you invest in the US stock market from India, there are two types of taxation events:
Taxes on investment gains
You will be taxedÂin IndiaÂfor this gain. Taxes will not be withheld in the US. The amount of taxes you have to pay in India depends on how long you hold the investment. The threshold for long-term capital gain is 24 months, with the rate of 20% with indexation benefit. If you sell a stock in less than 24 months, capital gains are considered short-term and are taxed according to your income tax slab.
Taxes on dividends
Unlike investment gains, dividends will be taxed in the US at a flat rate of 25%. Fortunately, the US and India have a Double Taxation Avoidance Agreement (DTAA), which allows taxpayers to offset income tax already paid in the US. The 25% tax you already paid in the US is made available as Foreign Tax Credit and can be used to offset your income tax payable in India. Want to learn more about how taxes work when buying U.S stocks from India?
How do I fund my account?
Since investments in US equities must be made in USD, you must wire (remit) USD to your brokerage in the US before you can start investing. At Vested, we have simplified this process for you.
What are the brokerage charges?
Different entities charge different rates and have different structures. For example, brokers might charge a fixed fee per trade or charge a percentage of total trade or total asset. In contrast, Vested offers zero commission, unlimited investing (unlimited buy/sell trades). Since the investing process requires international transfers from Rupee to USD, in addition to any potential brokerage fees, there might be other fees that investors incur in order to invest in the US. These fees could be international wire fees or FX conversion fees that the investor’s bank charges, which may vary depending on the bank that the investor uses.
How much can Indians invest in the US stock market?
In accordance with the LRS, an individual can remit a maximum of US $250,000 USD per year for investments. .
What other features does Vested offer?
The Vested platform offers the easiest and most robust US investing capabilities, enaling you to easily buy US stocks. Our platform includes:
Real time share market price stream on both our web and app platforms (Android and iOS).
One of the easiest to use and the most cost effective transfer INR to USD transfer method in Vested Direct.
The easiest method to track and report your Indian taxes when you invest in US equities.
Curated model portfolios and collections, enabling you to easily diversify and follow different investment themes (such as software-as-a-service, businesses with deep moats, digital cash, and others).
With Vested, you can buy and sell fractional shares. This means you can invest as little as $1.
Popular US Investment Glossary
Ok – now that you have read the overview on how to buy us stocks from India, here are several glossaries that you need to know.
Investment Indices:Instead of investing in individual stocks, when investing in the US, investors can easily invest in a broad diversified basket of stocks through indices (or stock indexes). Several popular US indices are:
S&P 500: tracks the performance of the 500 largest US companies by market capitalization. In the year 2019, the S&P 500 surged more than28%, which is the highest increase since 2013.
Dow Jones Industrial Average: tracks the performance of 30 large US companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. In 2019, the Dow Jones gained22%for the year.
Nasdaq Composite Index: tracks over 2,500 securities listed on the NASDAQ. In 2019, the Nasdaq Composite Index broke through the 9,000 level for the first time ever.
Fractional shares: the ability to buy less than one shares. This means, you can buy high priced stocks such as Apple, Tesla, Amazon for as little as $1.
Figure 5: Annual return of the three major indices in 2019
Sectors:The US is the world’s largest economy and is home to the world’s largest stock market. Its economy can be classified into 11 major investment sectors, which encompasses communication services, energy, real estate and utilities. In 2019, all 11 sectors posted positivereturns.
Figure 6: 2019 S&P 500 sector performance
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NSE IFSC. On NSE International Exchange (NSE IFSC), a fully-owned subsidiary of the National Stock Exchange of India, you can easily purchase US stocks directly. ...
You can opt for foreign brokers like Ameritrade, Charles Schwab and others that have an Indian presence to start directly investing in the US stock market. NSE IFSC - You can also trade US stocks through the NSE IFSC, a wholly-owned subsidiary of the National Stock Exchange (NSE).
So when investing in US stocks, we need to check if the brokerage is regulated by the appropriate governing authorities of the United States. Verdict : Vested Finance is legit.
After opening your trading and demat account with NSE IFSC registered brokers, you can Transfer funds from your local bank account to NSE IFSC registered brokers bank account. Once the fund reflects in your broker's account you are ready to trade in NSE IFSC US Stock.
Some of the greatest apps to help Indians buy in international equities include Basan Equity Broking Limited, Groww, Vested Finance, and the Webull app.
Basan Equity Broking Limited: Basan Equity Broking Limited is a pioneer in Stock Broking, Fund Management, and Financial Solutions in India. ...
Vested and INDmoney both are reliable apps for U.S. stock trading. Vested is, however, more reliable regarding security and ease of use (better interface and dashboard features). Vested is also single-focused on U.S. stock trading.
1. Tax on Dividends. When calculating tax on US stocks in India, you have to take into account dividend earned from US stocks as well. This amount is taxable at the rate of flat 25%.
Stocks part of Group X,XT,Z are charged @ 0.1% of transaction value. Stocks part of Group P,ZP are charged @ 1% of transaction value. Stocks traded under the odd lot mechanism (excluding scrips belonging to M,IF, and IT) are charged @ 1% of transaction value.
If you sell all your vested shares, it is commonly referred to as a same-day sale. Cash Exercise – A cash exercise means that you pay your company the amount of cash required to cover the tax bill at the time of exercise. This results in your retaining the maximum number of shares.
Employee Stock Options (ESOs) : For ESOs, when stock becomes fully vested, the employee has earned the right to an option to purchase the shares that were granted to them in the past. Restricted Stock Units (RSUs) : For RSUs, when stock becomes fully vested, the employee has earned the ownership of the shares outright.
You can also open an overseas trading account directly with a foreign broker with a presence in India. Some such brokerages are Charles Schwab, Ameritrade, Interactive Brokers, etc. Ensure that you understand the fees and charges before opening the account.
You can directly open an overseas account with an international brokerage firm who have a presence in India. Some of the foreign brokers operating in India are Ameritrade, Charles Schwab. However, before buying stocks through these firms, you must understand the brokerage fees/structure and other costs.
When compared to Indian markets, the US markets have been less volatile in the long run. Indian equities have shown great volatility, with bigger swings in returns over the years. This is another reason experts recommend diversification when it comes to investing, since risks are spread out and diminished.
In summary, US Markets have given slightly better returns as compared to the Indian Markets, and that too with less risk/volatility. However, whether you choose the Indian markets or the US markets for your investment objectives, be wary of the pros and cons of both to ensure the risk-return tradeoff is balanced.
You can buy US stocks and ETFs from India directly through INDmoney. If you find some US stocks expensive, you can take advantage of fractional trading and start your US investment journey for as little as $1. INDmoney makes it easy for you to invest in US stocks by categorizing them as hot, tech, pharma, etc.
PPF is considered one of the best option for safe and high return investments in India. The PPF is a long-term investment scheme, which helps to create a retirement corpus while saving on annual taxes.
Often, vested stock options permanently expire if they are not exercised within the specified timeframe after your termination of service. This article outlines common stock option provisions and key dates that departing employees should keep in mind.
The money sent from India to the US is not taxable. However, you must declare it to the IRS by submitting Form 3520 if it exceeds US $100,000 for any given year. There are no taxes due on this form; it is merely informational. However, gift taxes in the US can be imposed if the funds are given as a gift.
If you want to treat income from sale of shares as capital gains, long term capital gains from equity above 1 lakh per year is taxable. On the other hand, short term gains are taxed at 15%.
First, under section 112A, any capital gains under the value of ₹1lakh is not taxable. So one of the best ways to avoid paying capital gains tax when you sell your stock is to make sure that you keep your capital gains within the exemption bracket.
On INDmoney, there are Zero charges and Zero brokerages for all the services including the ones mentioned above. Furthermore, the foreign exchange remittance charges by the partner bank are zero with the most competitive USD-INR exchange rate.
You cannot withdraw funds in your term deposit account anytime you want. Instead, your amount is locked for a particular period of time and you can only withdraw it after the end of your term. And in case you withdraw funds from your term deposit before its maturity, it can result in significant penalties.
How much can I invest in US stocks? The Reserve Bank of India has a limit of $2,50,000 (approx. ₹192.5 lakh) under the Liberalised Remittance Scheme, so you can invest up to this amount freely, without any restrictions.
Who is my US broker? Is this regulated? Using the INDmoney technology application, one opens an account with a regulated US broker, namely Drivewealth, LLC. This is regulated in all 50 states in the US by the U.S. Securities and Exchange Commission('SEC'), and Financial Industry Regulatory Authority ('FINRA').
It provides coverage up to $500,000 per customer for all accounts at the same institution, including a maximum of $250,000 for cash. In case both INDmoney as well as DriveWealth miraculously shut down, your portfolio can be traced with the companies whose shares you purchased.
What you're getting is essentially a promise that on a date in the future, you'll be issued the stock if you've met all the vesting requirements. On that date, you will pay ordinary income tax on the value of the stock.
If you sell your shares immediately, there is no capital gain tax, and you only pay ordinary income taxes. If instead, the shares are held beyond the vesting date, any gain (or loss) is taxed as a capital gain (or loss).
“Vesting” in a retirement plan means ownership. This means that each employee will vest, or own, a certain percentage of their account in the plan each year. An employee who is 100% vested in his or her account balance owns 100% of it and the employer cannot forfeit, or take it back, for any reason.
Under a standard four-year time-based vesting schedule with a one-year cliff, 1/4 of your shares vest after one year. After the cliff, 1/36 of the remaining granted shares (or 1/48 of the original grant) vest each month until the four-year vesting period is over. After four years, you are fully vested.
When you leave a job before being fully vested, the unvested portion of your account is forfeited and placed in the employer's forfeiture account, where it can then be used to help pay plan administration expenses, reduce employer contributions, or be allocated as additional contributions to plan participants.
To trade derivatives, you will need an account with an international broker registered in the United States. Many Indian brokers, such as ICICI Direct, etc., offer an Internationally Brokerage account that enables Indian residents to trade on US stock markets.
Nasdaq 100 has significantly outperformed S&P 500 in terms of performance. Over the past 15 years, Nasdaq 100 has delivered a CAGR of around 16%, while S&P 500 has returned about 8%.
That said, you shouldn't necessarily invest exclusively in the S&P 500. There are other indices, sectors, and groups of stocks you can invest in through mutual funds and ETFs, and there are some excellent individual stocks you can invest in.
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When calculating tax on US stocks in India, you have to take into account dividend earned from US stocks as well. This amount is taxable at the rate of flat 25%. Hence, if the company declares a dividend of $100, then you will receive $75.
Vested Finance had tied up with SBM India for forex transfers in October 2022. “The Reserve Bank of India (RBI) issued an order instructing the State Bank of Mauritius (SBM, India) to halt all transactions under the Liberalised Remittance Scheme (LRS) until further notice.
Can an NRI use the Vested platform? Yes. In order to onboard you, we will require your PAN card (or passport), an address proof (bank statement) and tax ID from the country in which you are currently a tax resident.
3. Is dividend taxable in 2022? Yes, any dividend income you earn is taxable in India. This includes dividends you earn from your direct equity investments as well as your mutual fund investments.
Any profit you make from selling a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year. If you held the shares for a year or less, you'll be taxed at your ordinary tax rate.
Once RSUs vest, you can sell the shares immediately. There will be no additional taxes to pay if you do this. However, if you decide to hold onto the shares, you may pay capital gains on RSUs. If the value of the shares increases between when they vest and when you sell them, you will have made a capital gain.
Interest earned on balances in NRO Accounts is not exempted from Indian Income tax. Instead income tax is deducted at source (TDS) i.e. at the time of payment of interest by the bank.
Balance held in NRO account can neither be repatriated.
Long-term capital gains are taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%. NRIs can claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains.
Under a standard four-year time-based vesting schedule with a one-year cliff, 1/4 of your shares vest after one year. After the cliff, 1/36 of the remaining granted shares (or 1/48 of the original grant) vest each month until the four-year vesting period is over. After four years, you are fully vested.
Once the grant vests you own the shares outright, at least in a public company. You can hold, sell, donate, or gift the shares as you wish (though you always need to avoid insider trading by not selling when you know important nonpublic information about the company).
Introduction: My name is Jeremiah Abshire, I am a outstanding, kind, clever, hilarious, curious, hilarious, outstanding person who loves writing and wants to share my knowledge and understanding with you.
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