Indian investors looking to invest in the US stock market such as Dow Jones, Nasdaq, S&P 500, and other listed companies can do so under RBI’s Liberalized Remittance Scheme (LRS). You have to use purpose code S0001 which allows you to open a US bank account as well as invest there.
If you haven’t yet considered exploring the US stock market as an investor, there are several reasons why you should:
An opportunity to build an international portfolio
Diversification of portfolio
Higher returns as compared to India
Exposure to other global markets
Easy to invest in MNCs
Acquire knowledge of international markets
Benefit from global fund flow and economic growth
There are two ways to invest in the US market:
1. Direct Investment You can open a US brokerage account to start trading in the US markets directly. The current limit to invest in the US stock market is $250,000 per Indian resident. However, you will need to open an overseas trading account. However, it can be a little complicated affair given the set of documents you need and the formalities you need to fulfil. You will also need to submit KYC (Know Your Customer) papers, LRS application, declaration form under FEMA (Foreign Exchange Management Act), and many other declaration forms.
The good news is that you can get this done through a domestic or a foreign broker by paying a brokerage fee. It is advisable to find a reputed and the best online stock broker who can guide you properly.
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2. Indirect Investment
You can make indirect investments via mutual funds or Exchange Traded Funds (ETFs). In fact, they are less expensive than the direct mode of investment.
You don’t require a Demat or a trading account to invest in the US mutual fund market. You don`t even need to open an international account or worry about currency fluctuations. There is no investment limit. You can invest using Indian Rupees.
Ideally, you should seek help from a professional mutual fund advisor who can give you good recommendations on which funds to invest in. You can consider using a mutual fund calculator to estimate the expense ratio before investing.
You can buy ETFs directly or route them through a domestic or foreign broker. Another option is to purchase Indian ETFs of international indices. Please note that you will need a demat and trading account to trade in ETFs. The hassle-free way to invest in ETFs is to invest in companies based out of India through funds of funds or feeders.
It is a good idea to invest in the US stock markets if you have surplus funds or you have exhausted all Indian investment avenues. However, it is recommended to trade the waters carefully as there are some legal, taxation and financial guidelines you need to follow. There is also a horde of fees and charges you need to understand.
Hence, you should take the help of a registered stock broker or mutual fund advisor to make your investment in US stocks.
Also Read: Foreign Investment: An Up-Growing Trend in India