Our world is becoming much more of a global village with every passing day, with crucial international trade, diplomatic ties, and the trust of economic cooperation between sovereign nations being the backbone for stronger global economies and businesses. A tech giant in Silicon Valley cannot grow without the inputs of technical support from India, cheap manufacturing from China, and cheaper raw materials from Vietnam.
This globalized economy supports the mutual growth of businesses, which extends to the context of investors and stock markets. There is no reason why, for example, a user of Amazon, Facebook, or Google in India should not have the opportunity to be invested in their respective shares in the US stock market.
Fortunately, this transaction is permitted and encouraged, and we will discuss how to invest in US stocks from India in this article
How to buy US stocks from India?
There are broadly three ways to invest in US stock market from India.
1) Opening an overseas account with an Indian brokerage firm:
This is the most convenient option available to Indian investors. Many of our Indian domestic brokers act as intermediaries with their American counterparts through tie-ups and can execute your trades. Not all brokers have this feature and selective brokers provide this.
Also note that you will be likely to have restrictions on the number of trades allowed per day, investment vehicles where you cannot invest, or the minimum capital required to be maintained in the account at all times. This will also vary according to your broker.
2) Opening an account with the American brokerage firm:
The alternative is to open an overseas account directly with a foreign broker that has a presence in India, like TD Ameritrade, Interactive Brokers, Charles Schwab, etc. Brokers being based in their native markets are likely to offer services that will reflect their markets. However, one must note that this option could have an adverse effect on your investment costs like brokerage charges or taxes, as opposed to using an Indian broker.
3) Buying mutual funds of Indian firms with foreign equities:
If you feel unsure of buying stocks of companies of other countries, you can always purchase mutual funds and ETFs of Indian firms that invest in global equities as well. Some Indian brokerages offer sector-wise or market-capitalization-based mutual funds of exclusively US stocks too. These mutual funds and ETFs are especially useful for investors who do not understand American markets, or business models enough to invest in US stocks from India.
Why invest in the US stock market from India?
There are certain advantages of investing in the US stock market as an Indian investor. These include:-
1) Volatility: The US Stock Market, in general tends to be less volatile compared to the Indian markets historically.
2) Opportunity: Known as the American Dream, the USA provides the opportunity for a start-up or a small-scale company to become a world dominator, something which the Indian entrepreneurial ecosystem cannot boast of right now.
3) Diversification: Having stocks of American companies in your arsenal helps diversify your overall portfolio risk, especially in case something goes wrong in the Indian markets.
4) Potentially superior returns: The Dow Jones Industrial Average (USA's stock market index) returned 196% over the past ten years, while the S&P BSE Sensex (India's stock market index) returned 161% over the same duration. The returns in the American index sound more lucrative considering the rupee has also depreciated by 52% over the same duration.
5) Global hot stocks: Having the ability to invest your money in companies like Tesla, Amazon, Microsoft, Uber, Alphabet (Google), Facebook, Airbnb, Netflix, Spotify, Goldman Sachs, Morgan Stanley, AIG, Monsanto, Ford, General Motors, Twitter and many many more gives a major boost to your portfolio as well as provides you with an investment in a firm having operations in over 100 companies.
Precautions and Warnings:
Praising the Securities and Exchanges Board of India (SEBI), Zerodha's founder and CEO Nikhil Kamath had stated that 'SEBI is infinitely better than SEC (the US stock market regulatory body)'. Since the 1992 Harshad Mehta Scam SEBI has worked tirelessly towards creating multiple layers for the protection of retail investors that will prevent an aberration like the short squeeze of a fundamentally poor company like GameStop in early 2021. Therefore one must exercise caution in entering positions in certain stocks.
The cost of investing in the US stock market could be high considering brokerage and currency conversion charges. Do educate yourself on all the costs before opening an account.
Every great investor knows and understands the importance of diversification. Having shares of companies in the US stock exchange not only provides necessary diversification from the Indian market but also provides the opportunity for Indian investors to earn higher returns from the markets while also benefiting from the depreciation of the Indian rupee. Having the ability to invest in global giants like Facebook, Amazon, Alphabet, etc also adds an important weapon in an Indian investors’ arsenal