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Stocks and Investing
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Stocks and Investing
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Investing in US stocks? What Indian investors must know before clicking 'Buy' - BusinessToday

Investing in US Stocks: Essential Insights for Indian Investors

In an increasingly globalized financial landscape, Indian investors are turning their eyes toward the US stock market, drawn by the allure of tech giants like Apple, Tesla, and Amazon, as well as the stability and growth potential of the world's largest economy. However, diving into US equities isn't as straightforward as buying shares on the NSE or BSE. A recent in-depth analysis highlights the critical factors Indian investors must consider before making that pivotal "buy" decision, emphasizing regulatory hurdles, taxation implications, currency risks, and strategic approaches to maximize returns while minimizing pitfalls.

One of the primary gateways for Indians to invest in US stocks is through the Liberalised Remittance Scheme (LRS) introduced by the Reserve Bank of India (RBI). This scheme allows resident Indians to remit up to $250,000 per financial year for various purposes, including overseas investments. This limit covers not just stocks but also mutual funds, ETFs, and even real estate abroad. For stock investments, investors can use platforms like Vested Finance, Groww International, or even international brokers such as Interactive Brokers and Charles Schwab, which have tailored services for Indian users. These apps simplify the process by handling compliance and offering fractional shares, making it accessible even for small investors starting with as little as ₹1,000. However, exceeding the LRS limit can lead to penalties, so meticulous tracking of remittances is essential. Additionally, the RBI mandates that all such investments be reported in annual tax returns, underscoring the need for transparency.

Taxation forms a cornerstone of the discussion, as it can significantly erode returns if not managed properly. Under Indian tax laws, gains from US stocks are treated as capital gains. Short-term gains (assets held for less than 24 months) are taxed at the investor's slab rate, which could be up to 42.7% for high earners, while long-term gains attract a 20% tax with indexation benefits. Dividends from US stocks face a withholding tax of 25% in the US, but thanks to the Double Taxation Avoidance Agreement (DTAA) between India and the US, investors can claim a credit for this against their Indian tax liability. This means the effective tax on dividends might be reduced, but paperwork like Form 10F and a Tax Residency Certificate is required to avail DTAA benefits. Experts recommend consulting a tax advisor to navigate these complexities, especially since the Tax Collected at Source (TCS) of 20% applies on remittances above ₹7 lakh under LRS, though this can be adjusted against final tax dues.

Currency fluctuation emerges as a double-edged sword in this investment avenue. With the Indian rupee often depreciating against the US dollar—having weakened by over 10% in the past five years—investors stand to gain from currency appreciation when converting profits back to INR. For instance, if you invest ₹1 lakh when the USD is at ₹80 and sell when it's at ₹85, your returns get an extra boost. Conversely, a strengthening rupee could diminish gains. Hedging strategies, such as using currency-hedged ETFs, are suggested for risk-averse investors, though they come with added costs. The article stresses that while the US market offers diversification—reducing reliance on India's volatile sectors like IT and banking—exposure to forex risks demands a long-term horizon, ideally 5-10 years, to weather short-term volatilities.

Beyond financial mechanics, the piece delves into market-specific risks and opportunities. The US stock market, dominated by the S&P 500 and Nasdaq, has historically outperformed many global indices, delivering average annual returns of around 10% over the past decade, fueled by innovation in tech, healthcare, and consumer goods. Indian investors are particularly attracted to FAANG stocks (Facebook/Meta, Apple, Amazon, Netflix, Google/Alphabet) for their growth stories, but the article warns of overvaluation bubbles, as seen in the 2022 tech correction. Geopolitical tensions, such as US-China trade wars or inflation-driven interest rate hikes by the Federal Reserve, can trigger market downturns. Regulatory changes, like potential shifts in US capital gains taxes under different administrations, add another layer of uncertainty. To mitigate these, diversification across sectors—mixing tech with stable dividends from companies like Procter & Gamble or Johnson & Johnson—is advised. Moreover, passive investing via low-cost ETFs tracking indices like the Dow Jones or Vanguard's Total Stock Market ETF is recommended for beginners, offering broad exposure without the need for stock-picking expertise.

Practical tips abound for seamless entry. Opening a US brokerage account requires KYC compliance, often involving Aadhaar, PAN, and passport details, and linking an Indian bank account for remittances. Fees vary: some platforms charge zero commission on trades but impose currency conversion fees of 1-2%, while others have annual maintenance charges. The article highlights the importance of monitoring US market hours (9:30 AM to 4:00 PM EST, which is 7:00 PM to 2:30 AM IST), suggesting automated tools or apps with real-time alerts to stay informed. For those wary of direct stocks, alternatives like international mutual funds from Indian AMCs (e.g., Motilal Oswal's Nasdaq 100 Fund of Fund) provide indirect exposure without LRS hassles, though they come with higher expense ratios.

In conclusion, while investing in US stocks can supercharge an Indian investor's portfolio—offering access to global leaders and hedging against domestic economic slowdowns—it's not without challenges. Success hinges on thorough due diligence, from understanding LRS limits and tax treaties to assessing personal risk tolerance and investment goals. The analysis urges starting small, perhaps with 10-20% portfolio allocation to international assets, and regularly reviewing holdings amid evolving global dynamics. By arming themselves with knowledge and professional advice, Indian investors can navigate this opportunity-rich terrain confidently, potentially reaping rewards that extend beyond borders. This approach not only diversifies risk but also aligns with the growing trend of borderless investing in a digital age, where tools and information are more accessible than ever. (Word count: 912)

Read the Full Business Today Article at:
[ https://www.businesstoday.in/personal-finance/investment/story/investing-in-us-stocks-what-indian-investors-must-know-before-clicking-buy-489294-2025-08-13 ]