As of March 2022, the total market capitalization of the companies in the U.S. stock market was $48,264,353.4 million.1 Such a large market provides a wealth of opportunities for Indian investors who are looking to get exposure to foreign economies. However, Indian financial regulations mean there are some legal considerations for those looking to invest abroad. Understanding those regulations is the first step to safe investing and wealth building.
Why Invest in the U.S. Stock Market?
Most Indians start their investing careers by investing in domestic markets such as Sensex and the Nifty 50. These markets have many innovative and interesting companies in them. However, when your investments are concentrated in one country, this means you’re more heavily exposed to the risk of market downturns. Investing in the U.S. stock market in addition to domestic markets offers a hedge against any local downturns in the economy. It also opens up the opportunity for exposure to more high-tech companies and some of the most interesting global players.
LRS Rules Must Be Followed
The Indian government has strict rules relating to foreign investments. Most Indians, however, will be able to get involved with international markets via the Liberalised Remittance Scheme. This scheme allows individuals to send up to $2,500,000 abroad each financial year.2 There are limits on what the funds can be sent abroad for. Activities such as buying lottery tickets in foreign lotteries are prohibited. However, investing via a regulated broker is considered an acceptable reason.
Online Brokers Make Foreign Investing Easily
The proliferation of online brokers, both within India and in the USA itself, mean it’s easier than ever to invest in U.S. stocks. In most cases, the broker will handle the paperwork on behalf of the investor. Indians simply need to open an account with a domestic broker or, if they’d prefer to deal with a U.S. company, open an account with a money transfer firm that will allow them to send dollars to the U.S. broker. The act of buying and selling shares is generally the same as when dealing with an Indian exchange.
Top Domestic Brokers for Investing in U.S. Stocks
Several domestic brokers offer the option to purchase U.S. stocks, either as part of an ETF or by purchasing individual stocks. Vested, INDmoney, and NSE International Exchange are just a few of the Indian exchanges that offer the option to purchase U.S. stocks on their platform. These exchanges are perhaps the simplest option for Indians who are looking to get some exposure to international markets in their portfolio. Working with a well-known domestic broker reduces the risk of scams and may also help simplify tax issues since records will be provided tailored for the Indian market.
INDmoney is a popular Indian brokerage that offers the option to purchase U.S. stocks. It offers easy remittances with no fees, and handles the paperwork for investors too, making the purchase process as simple as possible. INDmoney has an easy-to-use mobile app for tracking the value of your portfolio and managing the balance of your portfolio. It offers a variety of investment options to suit people with different budgets and who are investing over a variety of different timescales.3
Vested is another modern investing company offering tax-efficient international investment options for Indians. In addition to allowing Indians to invest in U.S. companies, it also supports investing in alternative asset classes such as cryptocurrencies for those who can accept the volatility of such assets. Vested has a simple user-interface and the mobile app allows investors to keep track of their portfolios on the go. All paperwork is handled by Vested themselves, and the fee structure is simple and transparent.4
3. NSE International Exchange
NSE is a longstanding Indian exchange that is primarily focused on domestic investing. However, it does offer the option for investing in foreign companies, including U.S. stocks. Compared to Vested and INDmoney, NSE India looks like a relatively dated operation. Its website is less user-friendly, and the signup process is a little slower. Some investors, however, may feel more comfortable working with an exchange that has been around for decades and that is a trusted name in the finance world.5
Choose ETFs For Easy Exposure to US Assets
Picking individual stocks can be difficult for some investors, especially if they aren’t familiar with the international markets. If you’re not sure what stocks to buy, choosing an ETF could be a good idea. This financial instrument tracks an entire market, because it’s made up of a collection of the assets in that market. This makes ETFs a relatively low-risk way of investing. While an ETF won’t guard against a nationwide or marketwide downturn, it will guard against losses by individual companies.
Some U.S. Brokers Allow Indians to Open Accounts
In addition to using Indian brokers to purchase shares in U.S. companies, Indians also have the option of dealing directly with U.S. brokers such as Ameritrade, Charles Schwab or Webull. If you take this route, you’ll also need a money transfer account that allows you to send US Dollars to that broker. Dealing directly with an American broker may give you access to smaller companies or markets that the Indian brokers don’t offer investors access to.
Diversify Your Portfolio for Long-Term Risk Management
Whether you choose an ETF or to pick a few companies you like in sectors you’re familiar with, it’s important to try to build a diverse portfolio and to consider how long you are planning to wait for your investments to mature. The sooner you’re likely to want to withdraw your investments, the more important it is to manage risk carefully. Consider a mixture of stocks, bonds, and commodities as well as liquid savings, to prepare yourself for any market conditions.
Fractional Investing for Indians on a Lower Income
In the past, those on a lower income were priced out of the stock market because of high minimum investment requirements. Today, that is no longer the case. Any adult with a bank account has the opportunity to get involved with the markets. Some brokers, such as Vested, support the purchase of fractional shares. This allows Indians who are on a lower income to get started with saving and investing. Vested’s minimum transaction amount is $1. These fractional shares will receive fractional dividends and can be added to at any time. Putting in a small amount each week or month can help to build a strong portfolio over time.
Seek Advice Before Making Financial Decisions
Investing in any commodity or security is not without risk. The value of such assets can go down as well as up, so it’s important to make sure your investments match your goals and risk profile. If you’re not sure if a particular asset or investment plan is a good option for your needs, talk to a financial advisor before making any decisions. In general, it’s a good idea to have a liquid emergency fund in a savings account, before locking up assets in an ETF or buying individual stocks or shares.