Invest In US Market: Step-by-Step Instructions
Never Depend On A Single Income. Invest In Creating A Second Source
This quote by Warren is a piece of straightforward advice to enable people to have a secure future and a stable life. But the thing is, hardly anyone focuses on it. Financial literacy is yet not popular enough among the masses, leading to many instances with little to no security.
Most of us are so busy in our day-to-day lives that we avoid planning for the future altogether. People are stuck in present worries that they do not realize that if they take some time and plan their future, they could very well reduce some of the future problems. It does not mean I am recommending you to only think about the future and not act in the present. That defies the whole purpose of living a proactive life.
What you should do is, strike a balance between today’s work and future expectations. Your work should be able to produce results that can fulfill your future needs and expectations.
There are numerous ways, and it varies from person to person, but one of the ways you can meet those future expectations is by Investing. Investing is a very diverse field. You can invest in many assets that can generate positive returns for you. It could be an investment in yourself.
You can learn new skills, improve communications, and many more things to make yourself an efficient and productive individual.
Making yourself more suitable for lucrative jobs can effortlessly meet your expectations.
Another form of investing is investing your money in any asset to generate money. It could be a business, real estate, stock market, and many other newly formed sectors.
For the scope of this article, we will stick to Equity or Stock Market Investing.
Investing your money, especially in the stock market, has been one of the most prominent ways of making money. It has consistently generated large sums of money for people who have invested their money with proper knowledge and due diligence.
The stock market has generated a secondary source of income for many individuals, either by buying at a lesser price and selling at a higher price or acquiring money via dividends.
People who have consistently invested money in stocks for a long time have earned significant returns.
An annual investment of $10,000 in the NASDAQ index fund from 1990 to 2022 with an annual CAGR of 11.73% will lead to a corpus of 3.2 million dollars with a total investment of $320,000. The return shown here is almost 10x of your investment. It could be an investment for your child’s education in the future or well-deserving retirement home.
I know you must find it odd how an annual return of a mere 11.73% could lead to such a mind-boggling return. But for that understanding, I recommend you check out the article on the magic of compound interest.
The example is just showing you the importance of having to save money for the future.
But you might say, what if I cannot wait for this much? Then how is investing beneficial for me? How is it helping me create a second source of income when the only thing I am doing is letting money go out of my pocket?
So for people like you, I have a very new case for you.
The unfortunate pandemic that created a lot of devastation started in 2020 and is still going on as of writing this article(July 2022).
When that happened, the world’s economy suffered, leading to a complete halt of all socio-economic activities. The stock market crashed. Many lost their lives, and many were left jobless.
But people who would have invested in dividend-giving stocks like Apple would still have received some amount every quarter in their bank.
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Not all companies offer dividends, and some who do does not give good rewards always. These dividends are not very lucrative. They merely range from 1-3%, depending on the price. But any individual with a reasonable investment history would slowly add such stocks to their portfolio, giving consistent rewards and acting as a secondary source of income. Also, some companies are dividend-paying stocks and pay around 6-7% returns.
Moreover, the market crash gave in the opportunity to allow people to buy value stocks at affordable prices and hold them until their prices rose. When you could have only bought 100 shares, the cheap prices would allow you to buy 150 shares. And meanwhile, enjoy dividends from them.
These are some of the methods that millions use to create a secondary source of income. Yet some of you might find it too much trouble and still not invest. For readers like you, you can check out the detailed article on the importance of investing.
Now the question arises of which market to invest in. There is India, the US, China, and many more countries for us to finance. Since we are covering investing in US markets for Indians, the question arises can Indians invest in foreign markets as such?
Can Indians Invest in US Markets?
Yes, Indian investors can make stock market investments in the US. Indian investors can diversify their portfolios by purchasing shares of S&P 500, Dow Jones, Nasdaq, or other US-listed companies if they choose to do so beyond Indian equities and financial instruments, such as the Sensex or the Nifty 50.
Under the RBI’s Liberalized Remittance Scheme (LRS), Indian investors are permitted to invest in US stocks or ETFs by using the purpose code S0001 (fun fact: you can also open US bank accounts under this purpose code). Learn more about US investing and the LRS here.
Why Invest In The US Markets:
The next valid argument our readers can have is about the relevance of investing in US Markets. What are you not receiving in the Indian Stock market that you feel the need to invest in US markets? Here are the benefits of investing in the US:
The largest option for Indian investors to diversify their domestic portfolio among some of the top international technology, Internet, pharmaceutical, and manufacturing companies is through the US stock market.
They continue to be at risk from country risk by investing just in one economy. Numerous microeconomic and macroeconomic geopolitical issues have an impact on the economy of a country. The portfolio is nevertheless subject to concentrated risk in the event of any domestic political and economic unrest.
You must diversify your investment portfolio to reduce risk and increase possible profits. Without regional diversification, asset class, market capitalization, and other types of diversification are insufficient.
2. Fractional Investing
You can own US stocks in any amount, unlike in India. After all, owning a single share of Amazon, which currently trades for close to $3290, may not be an affordable option for everyone as it costs close to Rs 2.43 lakh. However, you can get a share by investing as little as Rs 5,000 or even less.
With enough time and money, you can increase your collection or create a portfolio of US equities. It is quick, easy, and simple to invest in US equities from India. You can trade thousands of ETFs and equities on the S&P 500, Nasdaq 100, Dow 30, or Russell 2000 Index, or you can purchase Nasdaq stocks from India.
Top international companies can be found on the US stock market in a wide range of sectors, from technology to pharmaceuticals and from large-cap to small-cap equities. The FAANG stocks—Facebook, Apple, Amazon, Netflix, and Google—are available for purchase at the moment when the US stock market is displaying signs of weakness. It is time to gather them to build lasting wealth!
3. Superior Returns
If you had invested Rs 4,921 ($100) in the SENSEX in January 2010, it would have increased to Rs 12,933 ($175) after 12 years. However, if you had put the same Rs 4,921 ($100) into the US stock market, your investment would now be worth Rs 20,044 ($272).
Why is there such a big difference in return performance? When compared to the Indian market, the US market has performed better. Over the past 12 years, the US stock market (Dow Jones Index, for instance) has beaten the Indian stock market (BSE SENSEX). The DOW has gained 172% throughout this time, while the SENSEX has returned 162%. When compared to the USD, the rupee has lost value.
The USD to INR exchange rate has dropped by 57% during the last 12 years. This has a considerable negative effect on your return over 12 years, expanding the performance difference.
4. Exposure to International Markets
It may be simple to invest in other overseas markets by investing in the US. For instance, investing in the US market eases the finance in the Chinese economy.
Some of the top technology companies in the world have been founded due to the rapidly expanding Chinese economy, which is being fueled by a burgeoning middle class and rapid technological adoption. However, an increasing number of these Chinese technology businesses are opting to list in the US as opposed to going public in China.
Additionally, there exist ADRs (American Depository Shares) of Chinese corporations, which allow USD-based buying and selling and are issued by foreign banks or brokers who hold the underlying shares. Another advantage for Indian investors is that the ecosystem is highly regulated, with stringent rules on financial reporting, transparency, and uniform governance procedures, making it easy for the investors to evaluate the various options.
5. New Opportunities
The US is referred to as the land of dreams. There is so much happening in the United States of America that there is never a scarcity of investing in new opportunities with groundbreaking ideas. Investing in US markets provides you with opportunities to invest money in those companies and earn high returns.
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How Can I Invest In US Markets?
There are primarily two ways by which one can invest in the US markets.
- Directly Invest in stocks by opening a brokerage account: Some businesses provide a platform with no minimum balance and commission-free investment targeted particularly at investors from India. Additionally, several companies offer paperless techniques that can be done in a matter of minutes, in contrast to many brokerage account opening procedures in India. You will require your PAN number, a digital copy of your PAN card, and address verification. The investor’s costs are often lower overall when using a brokerage approach, but you must wire money to the US. You are permitted to do this as an Indian resident under the Liberalized Remittance Scheme (LRS), which allows annual investments of up to US $250,000 per person. You can use the products such as INDMoney to buy stocks in US markets.
- Invest in Mutual funds and ETFs: Because investments get made using rupees within India, unlike the brokerage technique, there is no investment cap for Indian citizens. This strategy, though, might be more expensive. You should know that these funds typically have higher expense ratios (fees charged for operating the fund) because the fee covers both general fund management and an additional expenditure incurred by the underlying overseas schemes they invest in. For instance, the Franklin Templeton US Opportunity fund receives investments from the Franklin Templeton feeder fund in India. In addition to the 1.82 percent fee levied by the underlying US Opportunity fund, the Feeder fund charges an expense fee of 1.54 percent. But keep an eye on the new funds as new companies compete for the market shares and sometimes offer the same services at lower expense fees.
I know you must be excited to know further detail on how you can invest but first, let us know about the taxation. Because why not? When you earn, you must pay your taxes.
Taxation when Investing in The US Markets:
- Taxation on capital gains: For this gain, you will be subject to tax in India. In the US, taxes won’t be withheld. Depending on how long you keep the investment, you may have to pay taxes in India. Long-term capital gain rates are 20 percent with indexation advantage and a 24-month holding period. Capital gains are short-term if you sell a stock in less than 24 months, which is taxed per your income tax bracket.
- Taxation in dividends: Dividends will be subject to a flat tax of 25% in the US, unlike investment gains made on selling the stocks. Thankfully, a Double Taxation Avoidance Agreement (DTAA) between the US and India enables taxpayers to deduct income tax already paid in the US. You can use the 25% tax you already paid in the US to lower the Indian income tax you must pay. This tax is accessible as a foreign tax credit.
Investing via INDmoney
INDMoney is an all-in-one platform where you can have all your records in one place. It also allows you to invest in the US market effortlessly and with minimum paperwork. INDMoney is a go-to app when it comes to financial independence. You can see all your records in one place, helping you to make informed decisions.
You can see your account holdings and stock investment in India and the US. Moreover, you can check your mutual fund portfolios all in one place.
One of the new features recently offered by INDMoney is the creation of fixed deposits. And these deposits usually have higher percentage returns than usual banks. Along with this, there is a premium section for people having large sums of money. This section includes money managers with regular stock updates, which helps you improve your portfolio.
The app offers referral schemes also, especially for buying and selling US stocks. These offers vary from period to period, but they are some juicy referrals to look for.
Note: They have recently started a telegram channel where you can get the latest updates on the stock market. Click here to join the channel.
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Buying and Selling US Stocks:
Now you must understand how the mechanism of buying and selling US stocks works. Having complete knowledge of the mechanism can allow you to make proper decisions.
INDMoney has partnered with DriveWealth, a stockbroker in the US, to facilitate the buying and selling of US stocks. But to buy and sell stocks, you do need a bank account, isn’t it?
Here the State Bank of Mauritius comes into action. When you apply via INDMoney, a bank account gets created under your name in SBM bank, which can also utilize like an ordinary bank. You will fund this account, and when you give the command of buying an entity on the US market, the funds get deducted and sent to DriveWealth.
Drivewealth then initiates the action and processes your request. And Voila! There you have it. Actual shares of the US-listed companies.
But there is a twist in the tale, and I am responsible enough to tell you about this.
In the case of INDIA, usually, the stocks are stored under the individual names in the third place.
You can buy from any stockbroker, such as ZERODHA , but your shares get held at a third place like NSDL or CDSL.
But in the case of US stocks, the stocks are with a stockbroker. The stockbroker is the custodian of those shares. Now the question arises.
Can’t the stockbroker cheat us and close their shop at any given instance?
Actually, it is pretty hard for them. DriveWealth is a member of the SIPC ( Securities Investor Protection Corporation) that protects securities and money in your account up to USD 500,000 of which USD 250,000 may be in cash.
As per the current conversion rate, this reaches out to be around 1.9 Crore rupees. This much corpus is sufficient for many, and do not worry about them.
Moreover, these entities have partnered with multiple corporations like INDMoney, allowing more and more people to purchase US stocks. Thus it becomes a matter of responsibility to be among the companies with the best corporate governance with high ethics.
Fees and Withdrawals:
Before investing, you must understand the withdrawals and other fees you would have to pay for buying and selling US Stocks.
For funding the account to buy the stocks, there are NO charges. You have to add money to the SBM account and buy US Stocks.
When you place the conversion request, the current market rate is displayed to convert your rupees to dollars. The conversion rates are the best in the markets allowing you to buy the dollars with low fees.
When you sell your stocks and want to transfer the amount to your bank account, you will pay flat $5 for the transfer fees. So even if it is $100 or $1000, you only need to pay $5.
You can refer to the fees withdrawal FAQs here.
How To Open INDMoney Account to invest in US Stocks:
You can open your INDMoney account by using the links below.
You will be directed to the account creation process of US Stocks where you have to do the following:
- Share your PAN details
- Personal, family, and professional details
- Upload Selfie
- Update Risk profile
The process of KYC gets updated as per the required norms, so there might be some additional layers of steps that you have to submit. The process takes anywhere between 1-3 business days. But usually, it gets done quicker, so you need not worry. Furthermore, you must submit a recently filed ITR or the bank statement the first time you fund your US account.
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INDRewards is India’s most lucrative rewards program. You can get rewards with stocks and cryptos for good financial behavior and inviting friends to INDMoney. These rewards track the real-time price of the related stock/crypto. Hence their value grows with you over time.
Once you receive a reward, you can claim it to make it a part of your reward holdings. These holdings behave just like an investment portfolio. You can sell any fraction of your holdings to get Rupees in your bank account.
You can check my reward section and see the consistent rewards offered by INDMoney.
Another event started by INDMoney is the IND Quiz event, a knowledge-based game where INDmoney users can participate and answer future events.
You can win APPLE tokens and redeem them for Virtual Apple stocks on the platform, increasing the rewards
Which major Chinese company recently got delisted in the US?
What are your thoughts? Answer and win Apple Stocks:
Enter my code GAUH1M3APL while signing up on INDmoney
Referring friends to INDmoney
- Click on any card labeled ‘Refer Now’ and share your referral link/code with your friend. You get rewards once they join INDmoney and fund their US stocks account. Your referral reward is based on the amount of funds your friend adds to their US stocks account.
- Tracking Credit Card statements via email: Earn US Stocks worth 0.5% of your credit card spend (based on your spending on supported merchants)
- Good Financial Actions, such as Auto-tracking your investments, investing in US stocks via INDmoney, reducing your home loan EMI and many more!
Your portfolio will become more diversified if you invest in US stocks. However, remember that investing abroad has benefits and drawbacks, just like equity investment in Indian share markets does.
Therefore, be sure to take everything into account and invest per your financial objectives and risk tolerance. Maintain strong boundaries and a healthy balance between your greed and fear.
Using the INDMoney app, you can view all your portfolio with minimum effort and help you make better and more informed decisions.