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.