A common tendency of investors in India is to earn high returns with limited investment. One can use numerous ways to magnify returns, in which diversification is a significant tool that assists in the attainment of high returns. In diversification, an investor can buy and hold securities from multiple companies, industries, and countries. If an investor wants to diversify through buying securities from multiple countries, then the US stock market would be a destination place for every Indian Investor to invest their funds.
Is trading in US stocks from India allowed? As per the Indian stock market and Reserve Bank of India (RBI), every Indian investor can buy securities from the US stock market for investment, if they abide by the rules of the central bank and the respective stock markets. Just like investment in the Indian market, Indian investors can trade anywhere with international online trading apps.
Preparation before investing in the US stock market:
Firstly, you are required to make connections with an international brokerage firm that acts as a mediator between you and the US stock market. Unlike the Indian stock market, an international brokerage firm must abide by foreign exchange rules of the central bank of India (RBI). The broker, with whom you engage will execute investment and trading in the US stock market on your behalf.
How to trade in US stocks from India?
- Similar to domestic Indian brokers, you can register yourself with international brokers. Registration doesn’t create a hurdle as it’s an easy process and assists in opening an international trading account. It assists in intraday trading in the US market from India as well as long-term investment in the US stocks.
- To open an account, essential documents are needed to upload online with a broker. If you don’t want to get embroiled in troubles with a foreign country, then proper documentation is necessary.
- Funds are the dominant factor required to execute trading. Online trading apps allow you to add funds to your account wallets.
- You have a new world of securities in the US market. You can explore securities based on multiple criteria and invest your funds in the form of US dollars.
Important things to know before investing in the US stock market:
Rules regarding remittable funds for the US stock market:
To avoid any misstep in the international stock market investment, you would have knowledge about legal rules of RBI. The central bank specifies a limit to invest in the USA under the Liberalised Remittance Scheme. As per the LRS, every Indian individual (minors also) can remit USD 250,000 each financial year in the USA. If the forex rate between India and the USA is Rs 73.49/$, then you can remit Rs 1,83,72,000 as of 27th August 2021.
Foreign exchange rate effect on investment and trading in US market from India:
Due to the International forex market fluctuations, the value of an overseas investment increases and decreases accordingly. You can’t disregard the fluctuations as the investment by Indian investors in the US stocks has a considerable impact on it. For example, you bought US stock for $100 on day 1. The forex rate between the USA and India was Rs.74/$ that day. You are required to have Rs. 7,400. On day 5, you sold out your stock for $105. Forex rate between the USA and India is Rs. 72.5/$. You will get Rs. 7,612.5 with these fluctuations.
These are considerable points that should be kept in mind for investment in US stocks. Investment in the USA includes numerous stocks based on multiple criteria. You invest in energy stocks, financial stocks, ETFs, and indices. Investment can also be initiated based on market capitalization. In the USA, four considerable market cap stocks are obtainable to invest in. These are small-cap, mid-cap, large-cap, and mega-cap.
Value of investment from India to the US stock market would not plunge if you take every step with concentration and proper analysis.