How and Why to Invest in US/Foreign stocks

In recent years, there is strong inclination see in investors for investing in US stocks. Of course there is a reasoning behind it. Let’s try to figure out WHY and HOW part of it

WHY?

To understand this let’s understand the returns by DOW and BSE in last 10 years

US market consistently outperformed Indian market in last 10 years. Although there is no guarantee that it will happen in next 10 yrs again

INR to USD exchange rate declined — Source Vested

So outperformance of US markets along with Indian currency depreciation widens this performance gap further and this makes a strong case for investments in foreign stocks

Buying foreign stocks allows investors to

Diversify their portfolio’s risk by investing across geographies
Giving them exposure to the growth of other economies like China, US
One can buy fractional shares of bigger companies unlike in India.
Take advantage of currency depreciation.

How much to put in US stocks?

As a thumb rule for starters, a 5% to 10% exposure to foreign stocks for conservative investors, and up to 10-25% for aggressive investors seems ok

How much investment can be made overseas?

Individual investors can invest up to $250,000 every year overseas under the RBI’s Liberalised Remittance Scheme. After opening an overseas brokerage account, investors will be needed to fund it by remitting money from his/her bank account

Now let us understand the 2nd part of it

HOW?

An account with Indian Brokers like ICICI direct, HDFC Securities etc having a tie-up with a foreign broker internally. They will help you to make the process simple
Open an account with the foreign brokers directly like E*Trade, Interactive brokers which permits Indians to open an account and trade in US stocks, mutual funds etc
Investing through Apps like VESTED
Buying Indian MF/ETFs with investing theme of global equities like Parag Parikh Long term equity funds, ICICI Prudential US Bluechip, Aditya Birla Sunlife International Equity etc
Invest in US focused international mutual funds like feeder funds, Franklin templeton feeder fund

Open a low-cost international broking account and invest in low-cost international exchange-tradedfunds

Let’s also understand the precaution or risks to be taken care of

Precautions/Awareness/Risks –

Currency conversion
Remittance costs
High charges
Limitation of total money that can be put to invest–Although current limit seems sufficient for large set of investors

How will I be taxed for these investments?

When you invest in the US stock market, , please be aware of taxation part

Taxes on Profit:

You will be not be taxed in US
In India, The threshold for long-term capital gain is 24 months, with 20% indexation benefit.
If you sell a stock in less than 24 months, capital gains are considered short-term and are taxed according to your income tax slab.

Taxes on dividends:

Dividends will be taxed in the US at a flat rate of 25%. Due to Double Taxation Avoidance Agreement (DTAA), taxpayers can offset income tax already paid in the US (Foreign Tax Credit)

Disclaimer : The article is written to provide information and make investors aware of potential avenues of investment. Please don’t treat this as an investment advice. There could be change in tax laws from time to time and one should track it before investing. Past performance of any index returns can not and should not be taken as reference for future performance. Percentage allocation for each investor can vary and its best to consult to one ‘s own financial advisor before making investment decisions. We don’t have any mutual agreement with the sources or apps shared for investment and we dont gain/loss from your action in this regard

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