When it comes to diversifying your investment portfolio, the US stock market is a great choice. It is home to many of the most successful wealth-creating companies and technology businesses, offering great investment opportunities. The low correlation between Indian equity markets and those in the US makes this a very attractive prospect.

This article will help you to understand some of the things that you should consider before investing in the US stock exchange.

What you need to know before investing in US stocks

1. The Liberalized Remittance Scheme

The RBI’s Liberalized Remittance Scheme (LRS) allows you to invest in US stocks. This scheme enables Indian residents to send up to $250,000. This limit applies to each individual, including minors. A family of four can, therefore, send up to USD 1,000,000 per year. This includes all investments, such as US securities, real estate, bank deposits, etc. All overseas expenses, such as foreign travel or student education.

2. Geographic Diversification

Diversification by geography can help you to maintain a stable portfolio. Markets in developed countries are less volatile over the long term than those in emerging markets. You can participate in global growth by investing in US stocks. If you invest in Alibaba – China’s largest retailer – you become a part of China’s economic growth. You can also gain exposure to other economies through ETFs listed on the US market. The EWG ETF, listed on the NYSE, invested in the largest German companies.

In India, you cannot invest in new themes. In India, there are no large chip manufacturers or electric vehicles that you can invest in. You could, however, invest in Nvidia and Tesla to make those themes part of your portfolio.

3. Foreign Exchange: Impact on the Economy

The fluctuation of the exchange rate is a key factor when investing in the US. In the last few years, the value of the rupee against the US dollar has fallen by an average of 3 to 5 per cent. You are also investing in the US Dollar when you invest in US-based markets. Your portfolio’s value increases when the US Dollar appreciates.

Your Indian bank could also charge you an FX conversion fee or spread, which can range from 0.5 to 2% of the amount sent.

4. Taxation

To make your efforts worthwhile, you must consider the tax implications of foreign investments. India and the US are parties to a Double Tax Avoidance Agreement, which prohibits the taxation of the same income more than once.

Two taxes are applicable to your US stock investments.

1. Dividend Tax:
2. The US stock dividends for foreign investors are taxed flat at 30%. Due to the US-India tax treaty, the tax rate is only 25% for Indian residents (subtracted before distribution). Due to the Double Tax Agreement between India and the US, the tax paid in the US may be claimed in your domestic filing as a Foreign Tax Credit.
3. Capital Gains tax:
   No capital gains tax is charged on investments made in the US. You will have to pay taxes in India on your foreign capital gains. There are two main categories of tax:
   • Long-term Capital Gain (LTCG)
     You will be taxed 20% on capital gains if you hold stocks for more than 24 months. This is in addition to any applicable fees or surcharges. Indexation benefits are also available.
     Short-term Capital Gain (STCG)
     Profits from investments held for less than 24 months are added to regular income tax, and the standard income tax rules apply.

The newly introduced tax Credit at source or TCS is also worth considering. According to the new rules, all foreign remittances exceeding INR 7L within a fiscal period will be subject to a TCS of 5%. This tax can be claimed as an upfront expense during your annual tax return.

5. Life Goals

Your investment plan should include your life goals. Your investments should help you reach your goals if you plan to relocate or study abroad. If you plan to save $50,000 to pay for your child’s education abroad, then your portfolio should reflect that. It may be necessary to separate this from diversification goals, where you might want to have exposure to gold or commodities ETFs.

6. Additional Charges

You need a US brokerage to invest directly in US stocks. Winvesta, a platform that makes it easy to open a brokerage account digitally, has made this process much easier than in the past. Winvesta doesn’t charge any account opening fees or annual maintenance fees. Up to three trades per month are free of charge (10 trades to get started).

Some platforms charge up to $6.99 per trade, and they also have large joining fees and maintenance fees that can affect your portfolio’s performance. Before signing up for a platform, one must be aware that there are costs involved.

You will need to transfer money from your bank into your brokerage account. Depending on your bank, there may be FX and transfer charges.

Multiple fund transfers and transactions can result in additional fees for frequent trading. Multiple remittances will result in currency conversion fees and multiple remittances.

Start investing in US stocks with Winvesta.

Diversifying across different geographies can help you generate steady returns and plan your future. You can take the first steps towards reaching such goals with Winvesta. You get the best with 3000+ US Securities, an intuitive interface and strong regulatory compliance. Start today!