How to invest in US stocks from India? Here’s all you need to know

NEW DELHI: In a cute video posted on Twitter, the head of a prominent Indian mutual fund house was seen counting all the technical devices used by him and his son – all of which are manufactured by US technology giants.Over the past few months, the chatter about diversifying into global stocks has gained momentum, especially as some US tech stocks surged manifold within months, outperforming others – including the best-performing Indian stocks – by a wide margin.Mutual funds and PMS strategies investing in global stocks, too, have outperformed their peers, adding to the interest of retail investors on Dalal Street, who now want to own a slice of a Tesla, an Apple or an Amazon. Tending to these desires, many domestic brokerages have started global investment channels and many online platforms have cropped up, trying to make the most of this frenzy. The recent drop in US share prices has only helped draw Indian investors to US stocks.At ETMarkets, we talked to industry executives and experts to try and decipher the processes and requirements for overseas stock investing. Here is what we found out:-The PrerequisitesThe paperwork required for you to be able to invest in overseas stock is actually no different from what you need to invest in India. “An investor needs to do the same KYC process to open a US brokerage account. For user verification, you usually require the a PAN number, PAN card scan and a proof of address,” said Viram Shah, CEO and Co-Founder of Vested Finance, an outfit that facilitates investment in US stocks.ICICI Securities, India’s second biggest brokerage by client size, said to open an account to invest on the ICICIdirect Global platform, your net worth and liquid net worth must be more than $5,000.How to start?Among the established names, ICICI Securities and HDFC Securities and the like provide this service whereas Vested Finance, Kuvera and Winvesta are some of the new-age fintech discount-broking firms that offer this facility.ICICI Securities has a partnership with Interactive Brokers LLC of US while HDFC Securities has tied up with Drivewealth LLC. Kuvera provides its services via Vested Finance.If you already have an account with them, you can access US markets by opening a US brokerage account using the global investment portal. After that, all you need is fund in your account in US dollars.Funding your accountOnce you have opened your account, you need to fund it using the Liberalized Remittance Scheme (LRS) of RBI. Under this scheme, resident Indians are permitted to remit up to $2,50,000 per financial year for all current and capital account transactions. In other words, you cannot invest more than $0.25 million using this route. But then this amount should be more than enough for a retail investor.“Funds are transferred into this account under the LRS scheme and that is done digitally,” said Nandkishore Purohit, Head of Digital and Distribution, HDFC Securities.Swastik Nigam, Founder & CEO, Winvesta, said you must send the money from your own bank account, and the remittance process may require you to use a physical form, depending on the bank.What you can buy and what you cannot?A spokesperson for ICICI Securities said one can invest in shares of US-listed firms, exchange traded funds and listed fixed income securities over there. However, some brokers may allow investing only in Nasdaq-listed stocks (where most of the tech companies are traded). Depending on your broker, you can also buy fractional shares. That is, say, half of an Apple share.“Investment in derivatives is not allowed by RBI, as one cannot use LRS money to invest in speculative instruments,” said Shah of Vested Finance.US IPOs, too, are currently not available for Indian residents.What are the associated costs?Costs vary across the brokerages, as some charge account opening fees but provide brokerage-free trading, while others have no account opening fee, but may charge brokerages. Besides, there will also be forex charges levied by your bank.HDFC Securities: The brokerage charges no account opening fee. Brokerage charges depend on the plan you choose and vary from $0.01 per share to $2.99 per trade.ICICI Securities: The brokerage requires no minimum balance, and does not charge for inactivity or custody charges. Brokerage fees vary according to the plan and range from $0.01 per share to $2.99 per trade. It has two plans with subscription fees of Rs 999 and 9,999 a year.Vested Finance: The company charges Rs 399 for account opening. After that, no account maintenance or brokerage charges is charged. “We realised that high brokerage fees increase the costs to end investor by another 1.5-2 per cent, making international investing very expensive and unviable. Hence, we decided to make the platform commission-free. We do charge for value-add services such as pre-built portfolios that provide advice to users or for premium subscription plans,” said Shah.Winvesta: It has a free model for up to 10 trades a month and then charges a flat $1 fee as a brokerage charge.Kuvera: The platform allows commission-free trading.Besides the above-mentioned costs, industry experts said people should be aware of marginal regulatory fees and forex charges, which could be high. Forex costs are incurred when depositing US dollar into one’s brokerage account and while withdrawing money back to your Indian account. This can vary depending on what kind of tieup your broker has with banks.Shah of Vested Finance said his firm is working with banks to reduce forex costs and make it more affordable for one to move money in and out of a brokerage account.“For example, Axis Bank customers get a flat 1 per cent forex markup when they transfer funds via Vested partnership, versus a 3 per cent charge when they go directly to the bank. Even on the withdrawal side, there used to be a $35 fixed fee. We reduced it to $11 and will reduce it further,” he said.Who holds my shares?Your US-listed shares will be kept and managed by the broker under US laws. “There is a difference in the structure of how the accounts are held. In India, we have demat accounts at depositories, whereas the US follows a custodian model, where the shares are held at a custodian in the name of the broker (called ‘in street name’) and the broker in turn holds the shares in the name of the investor,” said Shah.Settlement cycleICICI Securities said the settlement cycle is T+3 for US markets, which is a day more than what it takes in India.Withdrawing moneyAfter you book profits or encash, you could either choose to hold the cash in your trading account (regulated by US laws) or bring the funds back to India by withdrawing the same into their Indian bank account. Withdrawing money does not need any additional requirement, but banks may levy forex charges.“Generally, it takes anywhere between 1-4 business days for the funds to arrive and to then it is sent back within 24 hours,” said ICICI Securities.Are Indians investing in US stock?Brokers claim they are processing heavy volumes. “We have been growing steadily and adding resources internally to keep up with the demand. Investors are also becoming more aware of the market. Volume processed has been growing 200-300 per cent month-on-month,” said Nigam of Winvesta.Purohit of HDFC Securities said his clients are using this platform to diversify portfolio and also invest in asset classes that aren’t available here, for example crude oil ETF. “While last year, it (investment in US assets) grew 2 per cent, it has grown 120 per cent over the past five years. In the last six months, due to Covid-19, volumes have increased 42 per cent,” he said.Shah said investor response has been very encouraging. His firm received $5 million in deposits in June quarter, up 50 per cent from the previous quarter.“This quarter is poised to end even stronger than the previous quarter. We recently launched partnerships with Axis Securities and Kuvera. All of whom are contributing to our strong growth. The encouraging bit has been that existing brokers, fintech firms and wealth management companies realise the value of geographical diversification and are deciding to partner us to offer services to their user base,” he said.

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