how to invest in US stocks from India

Hi everyone and welcome to today’s blog. Today’s blog (invest in US stocks) is very interesting from the point of view that I have been investing outside India in the last few months. I get questions like I am investing with you outside India, but are my stocks safe? Am I their owner too? What if the app through which I am investing? If it closes, what happens to my money, will I be getting it, is it insured? Is it not insured?

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Today we will understand the basics of investing in US stocks. I am a big believer, a big believer in India’s growth story. Most of my investments will be in India and will remain in India. But having said this from a diversification point of view, it is extremely important for me to take some positions outside India.
I’m going to cover that basic perspective. I will speak in five simple points. If you are a beginner. This blog is a must-read for you till the end so that you can find a way to invest outside India in a more systematic way. Correct

can we invest in US stocks from India

So point number one.
What you need to understand about investing outside India is that it is the concept of sovereign risk and hedging so what is a sovereign risk? Let us understand with some contemporary examples that are going on.
You must have read about Turkey’s economy and also that in the last month itself it is deteriorating every day. The Turkish lira, which is Turkey’s standard currency, has lost about 30% to 50% of its value in just one month.
Last year, a similar case was reported in a country named Lebanon. Again, the local people there lost a significant part of their savings due to sovereign risk. Sovereign risk, in simple words, means the risk of the state or the risk of the nation. Right now Pakistan is also going through a similar currency crisis.

Say that the rate of inflation is skyrocketing there every month and it seems that Pakistan is going to go into a bad state of economic affairs again.

Every country has a certain sovereign risk. India too has a sovereign risk. Is the situation as bad as in Pakistan? Absolutely. No. We are very stable. Much more sensible economy from that point of view. But even after saying this, many historical cases have come to the fore.
Lebanon, Turkey Recently you have Sri Lanka which went through a financial crisis a few years back, and you have Venezuela and Mexico which went through a series of default currency crises where bad things happened in the economy. And as a result, if you are a diligent citizen.
If you have saved and invested a lot of money in your local currency or local stock, your entire savings are likely to be exhausted. This is what sovereign risk means. Now you are called Akshat. If we move out of India, does this sovereign risk get reduced?

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For example, if you are going and investing in the European markets, or if you are going and investing in the Chinese or US markets, does the sovereign risk get reduced?
From a macroeconomic perspective, my answer is yes.
To a certain extent, sovereign risk is definitely reduced. If you are going and investing in a more robust economy.

invest in US stocks from India

Let’s understand with an example.

What you should know if you have invested in US stocks

If you are going to the US and investing. So what happens is India is a much stronger economy than you would have seen two specific developments. First, there is a depreciation of Rs. The reserve is the US dollar.
You can take a look at the full 10-year window. You can clearly see that the U.S. While strengthening on a year-on-year basis, in simple words, the Indian Rupee is depreciating against the US Dollar. This is the first sign of a weak economy. So to say, Citrus Paribus keeps other things equal.

Best way to invest in US stocks

Second, the main point that you must have noticed about India vs the US from an economic point of view is that recently when in 2020 COVID printed more money in US and US put more money into the economy than the Indian economy.
India was far smarter in how it released a ton of money into the economy. The US was very loose with how much money was released into the economy.

stock market and economy relationship

why does that matter? It means a lot because it tells you that you know what we can do and can act in a very high way. It can come and release a lot of money into the economy. Even then their economy will not be unstable.
On the other hand, sovereign risk is high in countries like India, and if they start acting like the US. So our economy can get derailed.
This is a sign of a weaker economy than the US. These are some of the basic macroeconomic things you need to understand, and should you consider investing outside India.
Also, I want to build on more to the point that people say you know what? You should diversify your investments outside India as diversification is good.
According to me, this is not the most important reason
Why you should invest outside India.

Why should you invest outside India?

You should invest outside India because the number one sovereign risk for a country like India is too high, and that is a macro reason why you should invest.
Second, the reason you should consider investing outside India is that there are certain types of businesses coming up that will define the next generation of businesses.

Let’s go through some quick examples. First, let’s talk about the RPA trend.

what is the RPA trend?

RPA is going to redefine how the workforce is created in simple words. What is an RPA? RPAs are smart, customized software that is going to replace humans.
Now here would be an example accounting firm.
Accountants perform a lot of repetitive tasks. If you can build customized software that can automate a lot of the work that accountants do in terms of tax filing, then a bunch of different things is RPA at play.
It is now disrupting jobs in the economy, which is India’s largest RPA firm. Let me know in the comment box and compare it with the size of the world’s largest RP firm.
This is a major trend that is emerging anyway, and from that point of view, you don’t have huge investment opportunities in India. By default, you have to move out of India to bet on it.
In India, for example, if you talk about businesses related to cryptocurrency, India is a very nascent market.
We haven’t even clarified the rules. People are not paying that much attention to cryptocurrencies. From that perspective, on the other hand, you have an exchange like Binance Coinbase. They have grown so much by now. If the Indian government says so.

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Do you know what cryptocurrencies are good for, we are very supportive of cryptocurrencies. What happens then is we’ve lost a lot of time getting into that race because from that point of view Binance Coinbase has become really huge.
So what I’m trying to tell you is there are a bunch of trends going on that will be defined over the next 10-15 years or maybe even the next five years. Next, Google, Next, Facebook, Next, Netflix, and these companies are not in India yet.
If you as an investor want to invest in these rising trends, you need to move out of India.
The second main point I want to discuss. If you believe in logic, fine. We understand that sovereign risk with India poses great investment opportunities outside India.
But which country should I consider?
should I go to china?
Should I go to America?
Should I go to Europe?
What should I do? And what are some of the main things that I need to keep in mind? First and foremost, you should look at the ease of investment.
For example, I like the Chinese market. I do not love China.

how to invest in US stocks from India

Second, you need to understand how transparent international markets are. For example, again, let’s take the example of China Now China, the reports, the audited data, and the business data that you get from different companies.
We cannot be sure whether that data is transparent or not. What kind of accounting standards are they following? We don’t know. And, as for general retail investors, China can grow at a tremendous pace. But the ease of investment and the transparency of the data become a big question mark for us to go out there and invest.
On the other hand, if you go and try to understand, hey,
can I go to America
can I invest Yes,
Because the ease of investing is quite easy. It’s simple, it’s standardized.
There is no problem in terms of investment. The data is very clear.
It’s very well audited from that point of view. If you compare us with China, I would say hey as normal retail investors sitting in India if you want to bet on international markets, you should go with us than China.

invest in US stocks

What about Canada, and Europe? A group of different countries. Again, I have interpreted a spectrum on one side, China on the other. The US, and Canada will fall somewhere along the spectrum and you need to choose your bets accordingly.
As per the markets you understand, my simple advice here would be that you should start especially when you are starting out. You should start by taking positions in markets that you understand.
For example, it is easy for us to understand the US market because we consume things like McDonald’s. easy for us. Correct? PNG We understand Unilever Hindustan Unilever.
We are the consumers of those products. So as Indians, we have more exposure than other businesses which are present in different countries.

(invest in US stocks)
If you want to invest in a country outside India, it will default to the US. Should be.
This brings us to the third point. How easy is it for us to invest in the US? I mean Indians go to America and invest there. Is it even legal?
Then this is the paragraph you need to read.
It states that under the LRS, which is the Liberalized Remittance Scheme, an Indian resident can send US$ 250,000 abroad annually without seeking approval from the Reserve Bank of India.
LRS has made it easier for Indian residents to study, travel and invest in other countries. So as Indians we can invest up to 1.8-1.9 cr as it is 250 000. Investing translates. We can definitely make these investments. (invest in US stocks)
There is no legal risk from that point of view. In fact, you can invest higher amounts as well, but you will need permission from RBI to do so. But as normal retail investors, I would agree that this is the maximum we are going to invest outside India in a year.
Now, this is only part of the equation which is fine. Oh great, I can invest $250 000,
But how easy is it? Do I need to be physically in the US to open my Zerodha-type account? need to go? The answer is no. You can use an app called Vested to make US-based investments.

(invest in US stocks)

It is also very secure in my opinion. Similarly, there are a bunch of other applications that you can explore. You can use your Indian documentation, for example, your Aadhaar, PAN card, etc. to open your contained account or any other app, and you can start buying US stocks directly. and US ETFs, which are exchange-traded funds. This takes us to the fourth point hey,

(invest in US stocks) how secure are these apps? What happens if they stop? do I lose my money? What exactly do these apps do? So I think we can break this topic down into a series of shorts Qs and As. So let’s understand it first. What exactly are these apps? So let me take the example of West here. So they are investment advisory firms that are registered secondary. so sec stands for Securities and Exchange Commission of India. We have SEBI. Similarly, in the US we have SEC.

It is also very secure in my opinion. Similarly, there are a bunch of other applications that you can explore.
You can use your Indian Documentation to open your contained account or any other app,
For example, Aadhaar, PAN card, etc., and you can start buying US stocks directly. and US ETFs, which are exchange-traded funds.

This leads us to the fourth point,
How secure are these apps?
What happens if they stop?
do I lose my money?
What exactly do these apps do?
So I think we can break this topic down into a series of shorts Qs and A’s. So let’s understand it first. What exactly are these apps? So let me take the example of West here.
They are investment advisory firms that are registered secondary. so sec stands for Securities and Exchange Commission of India. We have SEBI. Similarly, in the US we have SEC.

You go to the SEC’s website and here you can check the registrations you’ve visited. Its name is registered as Vista Vista Finance Vested Finance Inc. And here is the complete registration certificate. It is an investment advisory firm. They are investment advisors registered with the SEC in the US. This brings us to a related question hey, if I’m buying stock from vested,
What happens to my stock?
am I the owner?
Does anyone else own this?
How do I make partial purchases of different sub-topics? So let’s break it down. Now, first and foremost, when you buy stocks in the US, it does not come into your Demat account, as it does in India. This is the general rule of thumb in the US, the stock you are buying, you have to buy through a broker and the broker gets to keep your share.

US stock market rules and regulations

This is a very important point. Not that it is the fault of the vest or any app you are using. It is their fault. As per US market rules, whenever you are buying US-related securities, your broker will put it right.
So let me read this statement with you. Share ownership verification works a little differently in India than in the US.
The shares are held by a third-party custodian in the name of the broker rather than the underlying investor. This is the reason why you do not receive direct emails from the custodian regarding your holdings. As per sec guidelines.
If you would like to confirm share ownership of your vested account, you may contact Drive Wealth.

what is this dry wealth drive in invest in US stocks?

Now you will see what this dry wealth drive is all about. Wealth is a US broker whose portfolio is an investment advisory. So through this network, when you buy stock in the US, Drive Wealth is going to buy the stock on your behalf and hold it in your account.
Is it safe? Yes, it is safe as dry money is also registered with sec. Just as vests are registered with seconds,
Now comes the most fundamental question. What actually happens if the dry money stops? What happens if vesting stops? What happens to my money, do I lose it? Please explain what it does. Ok, then this is a very important paragraph that you need.
Your assets are kept with a third-party custodian to eat and best of all it doesn’t touch it or keep your money. If vesting closes, you will still have access to all your cash and securities as we will ensure that direct drive access is set up for you to continue buying and selling securities. In the highly unlikely event that both Vest and Dry Wealth close
Your SIPC insurance starts. It is similar to having insurance on your fixed deposit or bank deposit. So SIPC insurance is introduced and each brokerage account opened with Vested is insured up to US$500 000.
In short, the process of buying securities in the US is slightly different as compared to how we buy securities in India by securities and means stocks and bonds both in India and the US. are very different between.
The important thing to note is that whatever app you are using, or you are using any other party, please check their registration to understand who the broker is. Please don’t go and invest your money with untrusted apps. Please don’t do this Which can create a lot of friction. Lots of issues for you.
Make sure that whatever broker you are dealing with or any investment advisory firm in the US, they have SIPC insurance for your account. Plus, so in the unlikely event that all parties involved getting laid off, you still get your money. Very important concept. Now you say great. Brilliant. I understand why I should invest outside India.

Point number two invest in US stocks from India

Number two, I believe hey, you know what? Not so if I am investing outside India. I will not get a proper system. In short, have a proper regulatory framework.
Third and finally, where do I start? What are the key things I need to get started?
You are in your U.S. How to think about the stock investing journey. First and foremost, you should have a very clear understanding of what kind of stocks you want to invest in outside India. For example, if you are buying HUL shares in India, and similarly, if you are buying the same company in the US, it probably won’t make sense.
On the other hand, if you have the story you know that in India, tech companies will not become the next Google or Facebook.
I am going to the US to invest so maybe it makes more sense for you to explore these types of companies.
another. You should understand the various options available in terms of regional segmentation. For example, here are some of the major US regions.

Four reasons to start investing in the US market

First of all, the technical field is very easy for us to understand. Almost all of us start investing in the US market. We are very impressed with American technology. So it is very easy to understand this sector.
This will include companies like Google, Facebook, and a bunch of other well-known firms.
The second, part of this will be emerging technology. So here you will have companies like path, automation anywhere, and coin base, these are all different types of companies. This is another area you can consider.
Third, there will be a finance slash banking sector. You have companies like JP Morgan, Goldman Sachs, and Morgan Stanley, they are all very good companies.
Fourth, the US will have internationally listed companies. For example, Alibaba is a Chinese company, but it is listed on the US stock exchange. So that again makes it an important area to consider diversifying into. Then there is a sector called consumer staples. So these are everyday products. For example, McDonald’s people eat almost regularly, especially in America. So you have Walmart. So these are companies that generate regular cash flow. Companies like Coca-Cola. So these will be consumer staples. So to say, steady cash flow business.
You can read more about it of course. To build your understanding of the US economy, you have some contentious areas.
For example, utility, right you have energy. Now, these are high-infrastructure, cost-driven businesses. So be very careful in terms of investing in these types of sectors, it may not give you fruitful returns. And if you compare the index returns of the SNP 500, Utilities, which is the index for the US, the returns of the utility slash power sector have been very low in comparison. Then, of course, you have health care, and health care is on the rise.

This is a very prominent field in the US so you can start your research by understanding these different types of fields.

What is sustainable return, invest in US stocks

Now comes the final question, what is the sustainable return? I can expect that I am investing in the US economy or the US market. So let’s have a brief talk about it. For example, if you are investing in the SNP 500, which is based in the U.S. For stock investing, you can expect somewhere between 11 and 14% returns. There is a very important point related to dividend because in India dividend is directly credited to our accounts.
What Happens If You Are Investing By A West? Do you get dividends? Yes, you get dividends.
No problem at all. How are dividend taxes? Your dividends are taxed at 25% in the US and your gains are taxed in India. For example, if you bought Amazon and Amazon paid a dividend of $10, it would be taxed at 25% in the US as per US tax laws.
India has a double taxation avoidance agreement with the US.

If you sell your Amazon stock, let’s say you bought it for a hundred dollars.
You sold it for $120 and you made a 20% profit within a year, so it would be taxed.
thank you so much. I hope you enjoy this post.

Disclaimers 

I am not a financial advisor. Always engage a Financial Adviser to advise you on financial decisions.
Always do your research as the information and tips shared in these blogs are for educational purposes only.
The Information and tips are therefore not investment advice. If you decide to invest without your own research, you do so at your own risk. No rights can be derived from the information discussed in this blog.
investing involves risks, you can lose (part of) your investment.