Over the last few months, Indians have taken to direct equity investments in a big way. As the lockdown to control COVID-19 pandemic forced people to stay and work from home, many of them used up that time to buy stocks.
It's not just shares of Indian companies that people are buying. Thanks to new-age platforms, people can now buy stocks listed overseas, for instance, on the US stock exchanges too.
The attraction to buy shares of marquee companies like Google, Amazon, Apple and Tesla has lured many people to these platforms like Vested Finance and Winvesta. For seasoned investors, buying global stocks is also a good way to diversify their assets.
Vested Finance, a US Securities and Exchange Commission registered investment advisor, which allows Indians to buy US stocks, has seen $5 million worth in deposits on its platform in the April-June quarter alone and expects double that in the current July-September quarter.
“September is the strongest month until now. We are only halfway but have crossed the volumes we did in all of August,” said Viram Shah, CEO and co-founder of Vested Finance.
Under the Liberalised Remittance Scheme (LRS), Indians can invest $250,000 abroad in one financial year without any approval required from the Reserve Bank of India. And platforms like Vested Finance are making it easier for Indians to invest in US equities.
Winvesta, for instance, offers three trades per month for free and thereafter one has to pay $1 per transaction. Vested also offers a zero commission account to buy US stocks or exchange-traded funds. What’s also helpful is that these platforms allow you to invest small amounts and buy fractional shares, that is less than a full share of an equity or ETF.
“International investing gives these investors the opportunity to not only invest in a lot of companies they are avid consumers of but also to hedge against the rupee and geographically diversify their portfolio,” said Shah.
Equity markets crashed in March globally as investors were concerned over the coronavirus. But, since then, there has been a strong rally. Both S&P500 and Nasdaq hit record highs last month. That will only attract more people to invest in these markets. But, should Indian investors, who traditionally were averse to investing even into India’s stock markets, now jump and start buying US equities?
Gaurav Rastogi, founder and CEO of Kuvera.in, an online investment platform, says investing is an experience that is best witnessed as baby steps and one should not jump the gun with international investing.
“Your home investments (equity and debt) are the foundation blocks for your portfolio. It is important to ensure that these elements are in proper place (proportion, diversification, etc.) before venturing out to the seven seas,” he said.
But, international investing could be a smart investment decision, he adds. Three reasons should be highlighted here—you get to diversify investments (geographically as well as sectorally), it will act as a hedge against currency depreciation and it also opens up entirely new opportunities and themes, which may not be available in the domestic market.
Kuvera, recently partnered with Vested Finance, to allow investors on its platform to buy US stocks. In August, stockbroking firm Axis Securities had also launched a platform to invest in US stock markets, partnering with Vested Finance. ICICI Securities partnered Interactive Brokers LLC, a US-based online broker, to offer its customers a facility to invest in the US markets.
For now, companies only allow you to invest in US equities. Vested, does have plans to offer to allow investing in stocks in other geographies too. But, it hasn’t set a timeline for that.
“Our mission is to enable sustainable wealth creation for our users by allowing them to go from local to global. Opening up access to investment opportunities across multiple exchanges falls under this mission as well,” said Shah.
Discount broking firm Upstox too is set to launch global investing on its platform. In an earlier interaction with THE WEEK, Ravi Kumar, the co-founder and CEO of Upstox had said that people will be able to buy stocks from 60 different stock exchanges worldwide once it's launched.
How are these investments taxed? Firstly, there will be a tax on the dividends earned. According to Winvesta, the tax liability on dividends in the US would be a flat 25 per cent; essentially you will receive 75 per cent of the dividend as a cash payout. That US tax can be offset against the tax liability in India, due to the double taxation avoidance agreement between India and the US.
In the US, there is no capital gains tax for foreigners. However, there will be a capital gains tax you will have to pay in India. There will be a long-term capital gains tax of 20 per cent if you hold the shares for over two years. Short-term capital gains tax is applicable on investments held for less than two years and will depend on your normal income tax slab.
From October 1, foreign remittances of over Rs 7 lakh will attract a tax collected at source. This, though should not deter Indians from investing in foreign stocks.
“The new Tax Collected at Source rule change on forex transactions should not discourage the Indian investors who are looking to invest in US stocks or other global markets. While it increases the initial cost of the foreign transactions, but the increased upfront costs can be eventually be claimed back with tax returns,” said Prateek Jain, co-founder and President of Winvesta.