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1. Why is exposure to the overseas market important?

Business growth is happening everywhere. Even if India is one of the fastest-growing economies in the world, there are lucrative stocks in other stock exchanges that can have delivered good returns. Apart from returns, another goal of investment is to diversify. Overseas markets have a lower correlation to the Indian market. When you invest in Indian stocks alone, your entire investment is exposed to any national-level risk, like RBI interest rate decisions, rupee valuation or national economic slowdown. International diversification mitigates this risk. Investment in developed economies also offers stability to your investment. These economies donʼt react sharply to downturns and are robust enough to recover, even when they do fall. All these reasons make overseas investment an effective portfolio diversifier.

2. Why should I invest in the US market?

The US economy is considered to be stable and resilient in its recovery from downturns. Their currency is the global benchmark and when you compare INR to USD, you will note that INR has always depreciated gradually. Political situations, bad monsoons, meteoric rise of the Indian stock exchanges – USD maintains an edge over INR or most other currencies for that matter. So, an investment in the US market is not only the growth in the stock but also the dollar appreciation that you earn when you cash it back to the domestic currency.

A look at the last decade or so will reveal that US stocks have outperformed Indian stocks. The Dow Jones grew 196% in the decade ended 2020 while the Sensex clocked 150%. Added to it, the INR depreciated 44% against the USD during the same period. This goes to show how well an investment in the US market during this decade would have performed.

3. How can I invest in US stocks?

Indians can invest in US stocks directly as well as indirectly. It is permitted by the Reserve Bank of India under the Liberalised Remittance Scheme, purpose code S0001. Investments can be made in Indices like Dow Jones and Nasdaq, through Exchange-traded funds or directly in US-listed companies.

To invest directly you can open a US brokerage account. An account with Vested Finance is commission-free and has no minimum balance requirement. However, there is an RBI defined limit of $250,000 for such an account, per person per year. US investment can also be made through mutual funds in India that have a US focus. However, one needs to look into the expense ratio in such mutual funds, as it will reduce the net return of the investor.

4. How to open and operate my US investment account?

To start a US investment, you need to approach someone like Vested Finance to open a brokerage account. At Vested Finance the account opening process is carried out in a matter of minutes and is completely paperless. Proof of address and a copy of the PAN card is required to open this account. These documents can be uploaded to the Vested Finance account opening page and online guidance is available for the account opening process. Once the account is approved, you can add funds to the brokerage account.

5. How to transfer funds to invest in US stocks?

If you invest in US stocks through Vested Finance, the first step would be to remit money to start trading. The USD remittance is made to Vested Financeʼs partner bank in the US by filling the A2 form. Once the remittance is made, the selected stocks can be purchased through the brokerage account. This process is almost standard across any brokerage platform.

6. What are the expenses involved in investments in US stocks?

The expenses of investing in US stocks will vary depending on the brokerage firm you choose. Some brokers charge a defined fee per transaction or a certain percentage of the transaction value. Vested Finance offers a zero-commission trading facility, irrespective of the transaction value. However, the international transfer from INR to USD may involve a brokerage fee. Besides, there may be international wire transfer fees or forex conversion charges involved in the international transfer. The quantum of such charges depends on the bank used by the investor but generally ranges between Rs 500-1500 per transaction.

7. What are the Forex formalities in a US investment?

An Indian investor needs to use INR to buy the USD from an authorised dealer in India, generally a bank. The USD can then be used to purchase the stock in the US. Before starting to trade, you will have to complete the Liberalised Remittance Scheme form of the RBI. This Form A2 is provided by RBI-appointed authorised dealers only. The form must disclose the amount, purpose and PAN of the remitting investor. A 5% TCS is applicable on all remittances above Rs 7 lakhs. Presently, any investor including a minor can remit a maximum of $ 2,50,000 in a year, which at a conversion rate of Rs 74 amounts to Rs 1.85 crores

8. How to withdraw the investment from the US stock market?

If you have sold off your US stocks or have money lying in your brokerage account, you can withdraw it at any time. You can use your brokerʼs online platform and select the Withdraw option. The money is wired back to your bank account in India which is linked to the brokerage account. There may be a gap of 3-5 days between the withdrawal request and the reflection of the money in your account. Presently, a fee of $11 is being deducted by the remitting banker for each withdrawal.s

9. What are the taxes involved in US stock investments?

Tax may be charged on the capital gain made on the trading of the US stocks or the dividend received against the stocks held.

Tax on the capital gain will be charged in India only. The rate of tax will depend on the period of holding. If held for 24 months or more, a long-term capital gain tax of 20% is charged along with indexation benefits. If the stocks were held for less than 24 months, the short-term capital gain will be applicable and tax will be charged as per the income slab of the investor.

Dividend income will be taxed in the USA at 25%. The same will not be taxed in India as India has a Double Taxation Avoidance Agreement with the USA. The tax so paid will reflect as Foreign Tax Credit against your PAN.

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