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In short, the answer is YES.
There is no regulation that says that you must be a citizen of the US to buy stocks of the US company. In India and other nations, there are many mutual funds that invest in US companies like Alphabet Inc. (earlier known as Google Inc.), Microsoft Corporation etc.
I am not sure about other countries, but an Indian can invest in US markets by opening a US brokerage account. You must have a PAN to open a US brokerage account. Please also note that to buy stocks you will have to transfer money to your account first before buying the stock.
What are the Brokerage Charges?
It depends on the broker. I suggest you Google and check brokerage charges of the various brokers that allow buying stocks in the US. Though nowadays the charges are not very high. Still, you should open an account where the charges are low.
Please note that other than the brokerage fee you may have to pay some fee to the company that converts Indian Rupee to US dollars called the FX conversion fee.
How Much Can Indians Invest in the US Stock Market?
In accordance with the Liberalized Remittance Scheme (LRS), an individual can remit a maximum of US $250,000 USD (equivalent to 1,89,33,500.00 Indian Rupee – currently 1 USD equals INR 75.73), per year for investments.
Under the Liberalized Remittance Scheme (LRS), Indians can send money across borders without seeking approval from the Reserve Bank of India (RBI). The LRS has made it easier for Indian residents to study abroad, travel, and make investments in other countries.
How Much Can You Remit or Send?
As of Feb 22, the limit is US $250,000 per year per individual. This is equal to 1.90 crores. However, this may change as the RBI monitors the outflow of the money from India to abroad and may increase or decrease the limit per year as per the situation.
Why RBI Limits the Amount to Send?
RBI monitors its current account deficit and the value of the rupee. It may adjust the maximum limit of Liberalized Remittance Scheme (LRS) over time.
What Is Current Account Deficit?
The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. For example, if exports are 100 billion dollars and imports are 200 billion dollars then the current account deficit for that year will be 200-100 = 100 billion dollars. Note that if this continues for 10 years then the current account deficit will be 100*10 = 1000 billion dollars.
What Is the Current Account Deficit of India?
As on Dec 31, 2021, India’s current account balance recorded a deficit of US$ 9.6 billion (1.3 per cent of GDP) in Q2:2021-22 as against a surplus of US$ 6.6 billion (0.9 per cent of GDP) in Q1:2021-22 and US$ 15.3 billion (2.4 per cent of GDP) a year ago. Source: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53015#
Is There Any Other Way to Invest In US Companies’ Stocks?
Yes. You can invest via mutual funds which invests in foreign countries – HIGHLY RECOMMENDED. If you invest via a mutual fund you need not remit money to the US or pay any brokerages as this will be taken care of by the mutual fund company. However, for the charges that occur in transferring money and brokerages, they charge an expense ratio that may go up to 2% a year.
What is Expense Ratio in Mutual Funds?
A mutual fund is also a business. Investors invest money to get a good return. However, there is a cost involved in running and managing a mutual fund like office, infrastructure, electric, computers, software, accounting etc. Plus everyone working there needs to be paid. So, from where this money will come?
This money comes from a fee that the fund house deducts from the fund every year to pay salaries to its employees and manage the fund.
This fee is called the Expense Ratio.
Can you explain with an example?
Suppose Mr A aged 25 gets a job and started to invest via SIP (Systematic Investment Plan) – a highly recommended way of investing in mutual funds – ₹10,000.00 per month for the next 35 years. In between he ignores the volatility of the funds returns – this is also highly recommended. His mutual fund expense ratio is 1%. It generated a return of 12% CAGR (Compound Annual Growth Rate). Now let’s calculate his returns:
Real return: CAGR 12% – 1% expense ratio = 11%.
Compounding 11% for 35 years for a SIP of ₹10,000.00 per month:
Total deposit made: ₹42,00,000.00
Total interest earned: ₹3,88,57,363.38
Future investment value: ₹42,00,000.00 + ₹3,88,57,363.38 = ₹4,30,57,363.38
Now Mr A’s friend Mr B also gets a job and he too starts investing via SIP in another mutual fund which has an expense ratio of 2%. His investment is also ₹10,000.00 per month for the next 35 years. He too ignores the volatility of the markets and continues to invest for the next 35 years. His mutual fund generated a return of 12.5% CAGR (Compound Annual Growth Rate). Note that it gave 0.5% more returns than Mr A’s fund. So you must be thinking he will get more money when he redeems the money at 60? No. Here is the calculation:
Real return: CAGR 12.5% – 2% expense ratio = 10.5%.
Compounding 10.5% for 35 years for a SIP of ₹10,000.00 per month:
Total deposits: ₹42,00,000.00 (Same as Mr. A)
Total interest earned: ₹3,40,55,572.11
Future investment value: ₹42,00,000.00 + ₹3,40,55,572.11 = ₹3,82,55,572.11
Difference: ₹4,30,57,363.38 – ₹3,82,55,572.11 = ₹48,01,791.27
Can you now understand that even after giving a 0.5% better return than Mr A’s mutual fund, Mr B got ₹48,01,791.27 less because the expense ratio of his mutual fund was just 1% more than Mr A’s mutual fund.
Investors ignore the expense ratio when investing in a mutual fund, but it’s highly recommended that you see the fund’s past performance and also the expense ratio before investing in a mutual fund especially if your plan is to invest for a long time. A small percentage difference in the expanse ratio can have a huge impact on the returns.
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