The interest in the US stock market for investors in India seems to be fast increasing. Buying the US stocks even in small fractions on some of the leading US stock exchanges such as Nasdaq 100, S&P 500, Dow 30 and Russell 2000 is not a privilege that only investors in the US enjoy anymore. Investing abroad is also something most India investors are taking up to bring in the advantage of diversification in their domestic portfolio. There are several international brokerage platforms in the market today that help Indian investors to buy top US stocks such as Apple, Tesla, and Facebook, among others.
Opening a foreign trading account is simple and gets completed in a few days’ time with the brokerage house taking care of LRS and other KYC formalities. Viraj Nanda, CEO, Globalise, tells FE Online why the interest in buying US stocks is increasing, the process to open an account, the costs involved and what needs to be considered before investing in the US stocks.
On sudden pick up in the interest of Indians investing abroad in the US stock market
Several underlying factors have contributed to the surge in Indians investing abroad. The attractiveness of the US markets over the last decade has been one of the primary factors. Technological advances have made the investing process digital. People have been using brands like Google, Facebook, Netflix, Amazon and they can now own these brands which are growing rapidly and attracting interest.
Global investing also enable diversification and reduction of risk. The wealth management industry has further pushed the idea of cross border diversification of portfolios, as investors now see the merit in the concept. While there were 4.9 million DEMAT accounts opened in India in 2020, India accounts for less than 3% of the global stock market value.
On investing dollars abroad
Under the Liberalised Remittance Scheme, every Indian investor can invest up to USD 250,000 globally per year. Remittances under LRS increased from approximately USD 1 billion in 2013-14 to approximately USD 19 billion in 2019-20, and we expect remittances for investing overseas to mirror this trend over the next few years as Indians capitalize on the ability to build an asset base in dollars and save for overseas expenses such as education and real-estate purchases.
On formalities involved in opening an international brokerage account
Account opening formalities involve providing regular identity and address proofs like PAN card and Aadhaar card. The signup process is digital and the entire process of setting up the account may take 2-3 days usually. The online platforms offer simplified digital on-boarding to investors where users can submit the necessary information online including the identity and address verification required for the Know-Your-Customer (KYC) process to enable easy global investing journey. investors only need to have a PAN Card and Address Proof to begin their investing journey.
On costs involved
Cost of investing overseas can include the following:
- Account opening fees for setting up the investment account., which most platforms have waived off as of now.
- Remittance expenses – Flat charges that usually vary from Rs 250 – Rs 1000 per transaction across banks. Banks usually have a mark-up on the exchange rate when remitting or receiving currency.
- Brokerage expenses for purchasing securities – can vary from one entity to another depending upon plans offered.
- When investing in ETFs there are underlying expense ratios that the asset management companies would be charging for running the funds.
On selection a foreign broker
When selecting a foreign broker, it may be important to check if the company has a reliable and trustworthy team of financial experts with an apt understanding of the market. Also, check if the company is technology-driven with the holistic digital ecosystem in place and if the company offers advisory- led investing based on their risk profiles and financial goals.
Check also for registration with the primary regulator in the country (like SEC in the USA). The US market is well regulated and if the brokerage account is with a regulated broker, then accounts have protection up to $ 500,000 including $250,000 in cash. It may also be advisable to check for the pedigree of custodians and related entities that it works with.