There are two primary methods for investing in the US from India and both methods have their advantages and disadvantages:
Invest directly in the US markets by opening a US brokerage account to buy listed stocks, bonds, ETFs, etc.
Lower costs – net expense ratios are generally lower with most brokers offering commission free stocks and ETFs.
Increased control and flexibility for the do-it-yourself investor. Pick individual stocks, bonds or ETFs at real-time market prices and place limit orders, etc.
Initial barriers to entry for account opening with KYC requirements and cost of fund transfers from INR to USD. Added learning curve of the US markets.
Increased tax complexity with forms W-8BEN and 1099. Tax treatment is not the most ideal with 25% tax withholding on dividends and debt taxation on capital gains. Read more on tax compliance regarding foreign investments before investing.
Here is a quick run down of some options for opening US brokerage and trading accounts from India:
This option requires a minimum investment of $25,000 USD to get started and is best suited for affluent investors.
Charles Schwab is a leading financial institution in the US with over 12 million active investors and $4 trillion USD in assets. Schwab offers a plethora of investment management and financial services in addition to managing some of the largest mutual funds and exchange-traded funds.
They offer commission free trading of stocks, ETFs and options. Their investment platforms, advisory and customer service are very well regarded.
TD AMERITRADE – is a similar option to Schwab as a very well reputed full service broker with no minimum deposit requirements. However, they are in the process of being acquired by Charles Schwab and accounts are likely to be merged into a common platform on Schwab. The account opening process is hybrid – both online and offline – and time consuming. You have to complete an extensive signup process online and then physically mail the documents to their address in Omaha. May take 1-3 months for the account opening process given postal delivery times to and from the US. This is a great platform and highly recommended but may not be worth the effort given they are being acquired by Schwab. Might be best to open an account directly with Schwab and avoid any account migration in the future.
This option gives you a combined account for investing trading in US and India (NSE), as well as 90 other markets across the world. IB has minimum monthly charges of $10-20 no monthly minimums or inactivity fees (as of July 2021) and is now a very compelling option for advanced traders and those who want access to more than just the US markets.
IB Group has local offices in several countries including India and is a well known broker among advanced traders and financial institutions. They have over 650,000 clients and $160 billion USD in assets.
They have the largest selection of financial instruments across the globe and many advanced tools and trading platforms. They offer low fees, free tools and research, and advanced order types. Huge learning curve and not recommended for beginners or first-time investors. A great option for advanced traders or those who trade frequently. And the only real choice for the truly global investor.
ICICI Direct Global – is the overseas investment offering by ICICI Securities in partnership with Interactive Brokers. They seem to be offering premium subscription plans with annual fees ranging from ₹999 to ₹9,999 and also has brokerage charges ranging from $0.01 to $2.99 depending on the plan selected. Access to research reports and analysis from Zacks Investment Research and Refinitiv Stock Reports Plus (formerly by Thomson Reuters) is included in the subscription price.
ICICI Direct is a well established brokerage from ICICI Bank Group and their global investments through Interactive Brokers, a reputed name, should make for a robust and reliable international investing platform.
UPSTOX – is a discount broker similar to Zerodha and backed by some big names like Ratan Tata and Tiger Global. They have started offering global investments through an arrangement with Interactive Brokers. You need to open a regular demat account (CDSL) with them before you can get access to their global investing platform. Investing in US exchange listed instruments are charged $2 for each trade. Trades on all other exchanges are charged the higher of $9.9 or 0.1% of the transaction value.
UPSTOX UPDATE: This seems to be a non-starter as a public release is yet to materialize and they seem to have removed all links to the global investments page from their new website.
WEBULL – is another similar option aimed at traders and has no minimum monthly fees. They claim to offer commission free option trades in addition to $0 commissions on delivery trades. They have an advanced yet user-friendly trading platform that is equally suitable for long term investors with an interesting stock lending program. Requirements for Indians to open an account are minimal and was quick, easy and surprisingly hassle free.
This is perhaps the easiest and most practical option for most investors from India to get started with little to no committment.
Vested is a fintech startup and a registered investment advisor in the US. They have partnered with DriveWealth, LLC another fintech startup to provide US brokerage accounts to Indian residents. Vested offers fractional investing and charges $0 commissions on stocks and ETFs.
They have a limited selection of stocks, bonds, and ETFs and their platform is also severely limited compared to most mainstream brokers and is best suited for beginners. Their FAQ has answers to most common questions about investing in the US.
DriveWealth has made it easier for startups to access the US markets and now there are several startups providing similar services to Indians by integrating with DriveWealth. Companies offering similar access to US markets through DriveWealth with varying costs and service levels:
Simplicity and ease of getting started – just like any other mutual fund, ETF, or index fund in India. You most likely already have a demat account and/or mutual fund investments and are KYC approved.
Familiar tax regime – no additional tax complexity to what you are already used to. Tax treatment is similar to investing locally in India with equity or debt taxation depending on the choice of fund or ETF.
Tracking errors and higher expense ratios – most funds are currently prone to severe tracking errors and prices deviate significantly from the value of their underlying holdings. These funds and ETFs have higher net expense ratios.
Limited options and control stock selection and allocation is at the mercy of the fund manager or limited to broad indices like NASDAQ100 or S&P500.
Here is a quick overview of some options for gaining exposure to the US markets through mutual funds, ETFs, or index funds based in India
This is the first and only exchange traded fund (ETF) that tracks the NASDAQ 100 in India. Trading volumes are low with significant tracking error resulting in a price premium for the ETF compared to its underlying net asset value (NAV).
It is heavily tech weighted as it mimics the NASDAQ 100. Top holdings include Microsoft, Apple, Amazon, Google, and Facebook. As the portfolio is 100% comprised of foreign equity, tax treatment is that of a debt fund.
Listed as MOST SHARES NASDAQ 100 or the ticker symbol N100, the N100 ETF can be purchased on both NSE and BSE through your regular broker just like any other stock on the Indian market for delivery to your demat account. Motilal Oswal has also launched a mutual fund version of this ETF as a “fund-of-fund”, called Motilal Oswal Nasdaq 100 FOF, which is more convenient for regular investments by setting up a Systematic Investment Plan (SIP). Refer to our Motilal Oswal NASDAQ 100 ETF and FOF comparison for complete details.
This is a new fund offering (NFO) from Motilal Oswal that launched in April 2020 and tracks the S&P 500, a broad market index covering the top 500 stocks in the US.
The S&P 500 is well diversified and comprised of several sectors. However, the top 5 constituents remain the same as the NASDAQ 100 with MSFT, AAPL, AMZN, GOOG, and FB. In fact, the S&P 500 fully encompasses the entire NASDAQ 100. Beyond the top 5, changes are eminent with names like Berkshire Hathaway, JP Morgan Chase & Co, Johnson & Johnson, Procter & Gamble, Visa, Mastercard, Pfizer, Merck, PepsiCo, etc.
The S&P 500 is a strong candidate for a portfolio diversifier and can even make for a sole constituent of a passive US portfolio. This passive fund can be purchased like regular mutual funds and is treated as a debt fund for tax purposes as it is comprised of 100% foreign equity.
PPLTEF is an actively managed fund with a value focused mandate to invest up to 35% in foreign equity with most of it in US stocks such as Google, Amazon and Facebook. Other notable international holdings include Suzuki (Japan) and Nestle (Switzerland).
The remaining 65% is invested in domestic Indian equity with top holdings such as HDFC Bank, Bajaj Holdings, Mphasis, Hero Motocorp, ITC, ICICI Bank, etc. This fund is mandated to hold a minimum 65% in Indian equity and thereby receives beneficial tax treatment as an equity investment.
This fund offers limited exposure to the US markets and as an actively managed fund, stock selection is at the fund managers mercy.
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