Foreign companies seem enticing to invest in, especially considering the economic conditions after the slowdown due to the pandemic. The Securities and Exchange Board of India (SEBI) made it easy for Indian investors to trade international stocks at NSE International Financial Services Centre (NSE IFSC).
Here, investors can find benefits and ways of foreign market investing.
Why Investors Should Consider International Stocks
There are various reasons for an investor to invest in foreign markets.
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Diversification Across Geographies
The desire of taking economic advantages has encouraged many Indians to consider well-performing stocks on the cross-border stock exchanges. One of the preferable markets for Indians is the US stock market as it is home to technology giants. Easy foreign investing offers various opportunities to grab a bite of tech giants, including Tesla, Apple, Google, Facebook, Amazon, Microsoft, Netflix, and Walmart. Overseas diversification makes individuals invest in an economy that is doing well. In India, one can find opportunities in the primary market via upcoming IPOs.
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Own a Fraction of Shares
Investors can buy even half a share in US companies on the NSE IFSC exchange. They can hold US shares as IFSC depository receipts (IFSC DRs). If an individual owns a DR, it does not make them the owner of the whole share in the company. The investors will receive receipts for their share purchases depending on the ratio set by the US company, for example, a share of Company Z may be equivalent to 15 NSE IFSC DRs.
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Currency Benefit
Investors can have currency benefits as the rupee is depreciating against the US dollar. The trading currency on the NSE IFSC exchange is the American Dollar. The overall investment returns from the portfolio will increase when money is drawn out after a fall in Indian Rupee.
Tax Benefits on Dividend Income
Before knowing how to invest in US Stock from India, it is necessary to understand how US stock investments are taxed in India.
First, Indian investors need to pay taxes on dividends income earned on US stocks @ 25%. This tax rate for Indian investors is lower than the rate applicable to foreign investors. Indian investors enjoy tax savings thanks to the tax treaty signed between India and the USA.
Second, the dividend income is added to the Indian investors’ total income in the financial year which will be taxable as per the applicable income tax slab. Individuals should be happy that both countries have a Double Taxation Avoidance Agreement (DTAA) that allows Indian investors to offset their taxes in India against the tax withheld in the US.
For example, let’s say the dividend income is $1000. The investor will receive a dividend income of $750 (after-tax deduction @ 25%). The tax in India will be calculated at the entire dividend income of $1000. Suppose the tax liability of an investor in India is $30. The investor has already paid $25 in the US. Now, this investor needs to pay $5 in India with the advantage of offsetting the tax deducted in the US.
How To Invest in US Stock From India
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Direct Investment
Indians can invest in US stocks and exchange-traded funds (ETFs) using a demat account with a stockbroker having online trading permission from Indian and the US capital market authorities. Another option for direct investing is through NSE IFSC. One can trade fractional shares on NSE IFSC.
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Indirect Investment
Investors can invest in the US market indirectly via mutual funds. Several fund houses cover different industries in the US stock market to provide significant profits. However, one should consider high expense ratios and illiquidity issues while going with indirect investments.
The Closing
Thus, being aware of different aspects of foreign investing, investors can diversify their portfolios and take advantage of significant profits with realistic expectations.
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