Month: February 2023

Investing in US Stocks: The cost no one talks about!

The following article aims to understand how much it costs to begin investing in the US Stocks market, from the perspective of a general salaried individual. The assumptions here are that the reader understands the stock market and is interested to invest in the US market. Also, the investor understands that there are tax implications, exchange rate fluctuations and is savvy enough to test the waters on their own.

Investing in the US Stock market has always been quite lucrative for the retail investors of India thanks to the options of fractional buying and the advantage of the higher exchange rate of the US Dollar against the Indian Rupee. An investor who might have invested $200 worth of US Stocks at about ₹50/$, assuming zero share price movement, would have a portfolio appreciation of about 64% in the current times without having to do anything at all, simply because Rupees depreciated and became ₹82/$ i.e an investment of ₹10000 becomes ₹16400.
Fractional buying, as mentioned earlier, is also an interesting thing. In the Indian stock market, you cannot buy ₹500 worth of MRF’s stock because here the minimum number of stocks has to be an integer, meaning, a minimum of 1. So, your minimum investment in MRF has to be ₹88320 (as of 14-Feb-23). This is an entry barrier for a lot of retail investors. On the other hand, you can buy ₹500 equivalent of Tesla stocks and begin your US stock investing.
The easiest way to get benefits of the US market in providing some risk coverage to your domestic portfolio is by investing via mutual funds which also have US funds. It is simple and hassle-free. It functions just like the normal funds, just that they invest in a US fund, generally owned by the same company.

But, if you want to take charge and invest personally, there are a few available options. The traditional way exists by opening an account with international brokers and then proceeding as usual. Brokerages are generally high and there might be a few restrictions in place. The alternative is to use the apps such as INDMoney, Groww, Vested etc. These apps tie up with banks and use their DEMAT accounts for investing, or with US brokers who open an account on your behalf and the investment begins. One of the biggest marketing flex that these apps have is that they are zero commission platforms. That means, the apps do not charge you brokerage for the trades. While this is lucrative, charges exist for the withdrawal of your fund within certain limits.
So, what is the minimum cost incurred to begin investing? Let’s take two examples and try to find out. We shall be considering Vested and INDMoney.


Vested has zero sign-up charges, but it needs for you to have a DEMAT account with Axis securities. That costs ₹499 initially and then at least ₹750 per year, then on. Beyond this, money has to be transferred from your bank to the US broker’s account. Each transaction costs a minimum of ₹1000 in transaction charges, ₹500 in SWIFT charges and 18% GST.
So, for the 1st transaction, it will cost about ₹2000. This is without considering the bank’s exchange rate.

INDMoney, on the other hand, creates its own DEMAT account using KYC documents and then all you have to do is fund your US account. There too the charges are similar, except for the initial ₹499 as account opening fees. Here too, you are at the mercy of the bank’s rates to be able to transfer money from India to the US.


In my limited search, I found HDFC bank to have the least transaction charges. Beyond this, most of the banks range in around ₹1200-₹1600 per transaction. Something that is to be taken into account is that a big portion of the transaction fee is a fixed charge. So, whether you remit ₹5000 or ₹50000, the transaction fees would be very similar, with only the tax part changing. So, it is smarter to move a chunk of money and then invest from the chunk over a period of time, rather than affecting multiple smaller transactions.

In the latest budget proposal, there is a clause suggesting the implementation of a 20% TDS on foreign remittances, irrespective of a threshold. This TDS would be deductible against the income tax of the individual, but it is still a bit of “stuck” money. So, if you are planning to invest in US Stocks, the time seems quite ripe for the same.


In case you consider INDMoney, you may use the following referral code: KAU734U3IND
I hope I have been able to shed some light on the costs involved in beginning your US Stock Investing journey. Happy investing.


Cheers!

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Budget 23-24 implications on Personal Income Tax

On the 1st of February, 2023, Ms N. Sitharaman, the finance minister of India, delivered the last full budget before the term of the current govt. ends and general elections occur, expectedly, in May 2024. There were many expectations out of the budget from various groups of people and institutions, some have been met, some exceeded, while some have fallen short as well.

This post is not for the analysis of the entire budget, but rather of a very particular section, that affects salaried countrymen like myself, the Personal Income Tax.

With the proposal for the new tax regime for 2023-24 (hereafter mentioned as the new regime), discussions have come aplenty as to how much tax would be saved and how it shall spurt the growth of the economy and so on. It is beyond doubt that the disposable income at the hands of the salaried employee will increase, let’s take an example below.

For an employee, earning a gross income of ₹12,00,000, the income tax, as per the new regime comes to be ₹85800. For the same employee, under the old tax regime, considering the standard deduction of ₹50000, professional tax of ₹2400 and assuming HRA exemption of 15% of gross, the taxable amount becomes ₹967600, which attracts a tax of ₹110261. A difference of ₹24461, is definitely not a small amount. One must note that here we are considering that there are no tax-saving investments made. No 80C, no 80D, nothing.
We can summarize that by following the old regime, the employee would have a monthly income of ₹71445, whereas the new regime would provide ₹92850, a clear ₹21000+ difference. At a glance, this is quite amazing. Higher disposable income will invariably translate into higher consumption, which in turn will lead to better economic scenarios.

On the flip side, we must note that most of the exemptions that the old tax regime offers are tied to a certain security for the future. The sections 80C, 80CCD, etc. are aimed towards savings for the future, in the form of PPF, ELSS schemes, Sukanya Samriddhi schemes or NPS. So, for people who are still not too concerned about future plans, even for the sake of avoiding tax, there are avenues for savings. In the new regime, there is no such obligation. Rather now, one must be careful as to not spend all the money away on luxuries, rather than saving for future security. The fact that just because there are no exemptions anymore, does not mean that the need for insurance schemes shall vanish. Worse still, now one has to buy the schemes, as usual, but not be able to claim any tax rebate, if following the new regime.

Reimagining the above example, but this time, we consider that along with the deductions considered earlier, there is also ₹250000 worth of savings done in the form of 80C, 80CCD (NPS) and 80D schemes. The resultant taxable income becomes ₹717600. Calculating the tax on this, as per the old tax regime, we obtain a payable tax of ₹58261. Calculating further, we obtain a monthly disposable income of ₹59311. While this is about ₹12100 less than the disposable income obtained if no savings are done, savings towards future security is being done.
The point to note is that the new regime shall provide an increase of ₹33500 per month as disposable income. For an entrepreneurial person, it is an outright boon and it opens up growth opportunities.

Concluding the above views, we realize that the new regime will put more money in the hands of the individual, provide greater control and above all, entrust a lot of responsibility. As a follow-up to the budget, there should be more widespread awareness sessions about the various investment schemes, so that the people who opt for the new regime can utilize the money fruitfully.

This move, by Ms Sitharaman, might very well prove to be a turning point in the history of the country where the increase in the involvement of the salaried class in the investment market is remarkable or it may be the beginning of a downward spiral where unnecessary spending takes precedence over future planning leading to eventual misery and woe.

To end, I realise that people who understand their money matters properly, can control their finances well and believe that they can take care of the situation on their own, they must choose the new regime. The ones who are not too sure about their capabilities and would like to play it safe should invest as much as they can and take advantage of the old scheme. Finally, in my opinion, no one should opt for the old scheme if not keen on investing in any of the tax saving instruments currently.

The excel sheet used to make the calculations and come to the results is linked here. Please feel free to use it to compare your own tax liability. I am not a “Tax Expert” but I do fill my own ITR, am sure that counts 😊
The cover image has been sourced from Shutterstock via Google. I do not own any right to the photo.

I will be thrilled to read your thoughts on the report and am sure, I shall learn from your perspectives as well.
Cheers!

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