The Great American Dream is something most Indians are very well aware of. Everybody, irrespective of which demographic division they hail from, wants a piece of USA. Some live the dream by taking up courses, getting jobs or migrate to US post marriage. So, what makes US so enticing? Most people chase the American dream in search of a better lifestyle, career opportunities, better avenues for holistic growth or in short; money. If it’s for money, what if you can create wealth for the long term, in dollars, within the comfort of your homeland? Investing in equities across industries, market capitalization, and asset classes within the Indian Stock Market is common amongst amateurs and seasoned investors. However, only a few investors take the next step and diversify across borders. If you are a beginner, trying to create wealth through cross-border investing, the US Market is the place to start.
The quintessential millennial has always been skeptical when it comes to investing their hard-earned money, especially when indulging in cross-border investments. It makes sense to know about the market, its functioning and overall set up. While there’s always the looming questions can one really invest in US Markets?; or the fear factor with respect to how safe my money will be, there are a few things to keep in mind when you are all set to invest in US Markets.
5 Things to keep in mind while investing in the US Equities
1. Regulatory Framework
The US stock market is one of the oldest and well regulated Stock Markets in the world. The Securities and Exchange Commission (SEC) is the primary regulatory authority that overlooks the US Markets. Since 1930s, SEC ensures strict enforcement of laws and regulations, setting some of the highest standards of transparency and integrity which is a must for investor protection and confidence. In terms of safety of money invested, investors who are victims of securities law violations are eligible to receive money recovered from fraudsters. So, you can be rest assured that your money is safe.
2. Foreign Exchange Consideration and Taxes
Investing in US markets involves juggling between two currencies: the Dollar ($) and the Rupee (₹). Usually, the amount in rupees is converted into dollars just before purchasing a stock. Subsequently, any profits or dividends that you earn in dollars are converted back to rupees which lead to currency fluctuations impacting returns. With Stockal though, investors can transfer money to and from the Brokerage account and avoid this risk. In terms of taxes, dividends are taxed @ 25% in USA. Thanks to the Double Tax Avoidance Agreement between the 2 countries, this tax can be used to offset the tax that the investor would otherwise have to pay in India. However, one still has to pay Long Term Capital Gains if the stocks are held for more than 2 years or Short Term Capital Gains if the stocks are held for less than 2 years.
3. Investment Limit
People in India are allowed to invest in US stocks up to $250,000 under the RBI’s’ Liberalised Remittance Scheme (LRS). This LRS is generally used to fund education; travel or purchases. Any amount over and beyond the limit of $250000 would need RBI’s permission. Today, with platforms like Stockal, Indian investors can invest as less as $1 or fractional shares in companies they like.
4. Cost
Investing in the US stock markets involves a certain cost as the Rupee needs to be converted into US dollars. During initial account setting up, funds need to be remitted or transferred to the brokerage firm for funding the trading account. There could also be transaction charges which can be a flexible percentage of the total traded amount or volume or a fixed dollar amount. In addition to these charges, there can be other charges like: Brokerage account; Account Maintenance; Money Transactions and Bank charges It is always better to read the document and fine print carefully or talk to the agent.
5. Understanding
Last but not the least, prior to investing in the US stock exchange, it is important to have sound knowledge and updated information about the market. The US market hosts top companies like Apple, Amazon, Google, Tesla, etc and most leading US stocks have a stellar track record of generating consistent returns over the long run, along with healthy dividend payouts. Although these are markers for potentially lucrative investments, it is very important to analyze the global market and economy to make informed global investment decisions. It also helps if you understand the medium through which you plan to invest, thoroughly. This way, all the apprehensions and fear is put to rest.
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Global investing helps in diversifying one’s stock portfolio and potentially provides investors with global exposure, heft and a chance of better wealth creation. Watching Netflix or buy something from Amazon or just scrolling on Facebook gives a feeling of pride and ownership. With ease of access to information and advanced technology, global investing has become easy. Indian residents can consider cross border investing through multiple channels. However, like any other investment product, it is recommended that investors acquaint themselves with the way the US economy functions, the factors that affect it and other forces at play. Or, simply, log onto Stockal and start investing today!
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