A Guide To Investing In India From The Usa

India is one of the top emerging markets in the world, with foreign investment steadily rising over the years. The country's stock market is regulated by the Securities and Exchange Board of India (SEBI) and the two top stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). To invest in the Indian stock market from the US, one can either open an account with an international brokerage firm regulated by the U.S. Securities and Exchange Commission (SEC) or open an account with a SEBI-registered Indian stockbroker. Another option is to invest in India-focused mutual funds, Exchange-Traded Funds (ETFs), and Exchange-Traded Notes (ETNs) based on Indian stock or American or Global Depositary Receipts (ADRs or GDRs). Non-Resident Indians (NRIs) can also open specific accounts, such as Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts, to trade in the Indian stock market.

Open an account with an international brokerage firm regulated by the U.S. Securities and Exchange Commission (SEC)

To invest in India from the USA, you can open an account with an international brokerage firm regulated by the U.S. Securities and Exchange Commission (SEC). The SEC is an independent federal government regulatory agency responsible for protecting investors and maintaining fair and orderly securities markets.

Before opening an account, it is important to do your research and understand the investment landscape. The Indian stock market is regulated by the Securities and Exchange Board of India (SEBI) and the two top stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The NSE has a higher volume of trades and provides greater liquidity than the BSE.

When choosing an international brokerage firm, look for one that has a presence in the NSE, as this will allow you to trade Indian shares, options, futures, and indices. Some popular options include Interactive Brokers, Fidelity Investments, and Charles Schwab. These firms will provide you with access to the Indian stock market and allow you to start buying and selling stocks directly from the Indian stock exchanges.

It is important to note that you will need to pay additional commission fees and currency conversion costs when using these services. Additionally, keep in mind the foreign exchange rates, as stocks are traded in Indian rupees.

When opening an account with an international brokerage firm, you will likely need to provide personal information, such as your social security number, driver's license or passport information, employment status, and investment objectives. You may also need to make decisions about the type of account you want to open, such as a cash or margin account.

By opening an account with an international brokerage firm regulated by the SEC, you can gain access to the Indian stock market and start investing in Indian securities from the USA.

Open an account with a SEBI-registered Indian stockbroker

To open an account with a SEBI-registered Indian stockbroker, you must first choose a broker. As of 15 August 2024, there were 4902 registered stockbrokers in India, according to the SEBI website. Some of the biggest stockbrokers in India include Groww, Zerodha, Angel One, Upstox, ICICI Securities, and Kotak Securities.

Once you have chosen a broker, you will need to provide the prerequisites to start trading in the Indian stock market. This may include submitting a Permanent Account Number (PAN) card for tax purposes and providing the necessary documents for identity verification.

It is important to note that, as of August 2021, only Non-Resident Indians (NRIs) and Financial Institution Intermediaries (FIIs) have trading access to the Indian financial markets. NRIs and resident Indians can open specific accounts with brokers to access NSE stocks based on their location.

When opening an account with a SEBI-registered Indian stockbroker, you may also need to consider the additional fees and currency conversion costs that may be incurred. As stocks are traded in Indian rupees, it is important to keep in mind the foreign exchange rates.

By following these steps and staying informed about the latest regulations, you can successfully open an account with a SEBI-registered Indian stockbroker and begin investing in the Indian stock market.

Invest in India-focused mutual funds in the US

If you are looking to invest in India-focused mutual funds in the US, you have a few options.

Firstly, you can invest in a US-focused Fund of Funds (FOF). A FOF is a type of mutual fund that invests in other mutual fund schemes, including funds listed in international markets. By investing in a US-focused FOF, you can gain exposure to US mutual funds. Most FOFs invest in US index funds that track broad market indices such as the S&P 500 or the NASDAQ Composite.

To invest in a FOF, you will need to open a trading and demat account with a stockbroker of your choice. The units of the US mutual fund you purchase will be stored electronically within the demat account. You will also need to conduct thorough research to select a FOF that invests in your preferred US mutual fund or index fund. When selecting a fund, consider factors such as its objective, investment strategy, historical performance, and management track record, among others.

Another option is to invest in India-focused mutual funds through an asset management company that created the fund. There are no minimum balance requirements for these funds, which is advantageous compared to opening an overseas account. However, it is important to be aware of currency exchange rate risks when investing in international mutual funds, as exchange rates can fluctuate due to various economic, interest rate, and geopolitical factors.

Additionally, you can consider investing in Exchange-Traded Funds (ETFs) or Exchange-Traded Notes (ETNs) based on Indian stock or American or Global Depositary Receipts (ADRs or GDRs). ETFs are traded on stock exchanges and can provide easy diversification and flexible investment options. ADRs are negotiable certificates issued by a US bank that represent a specified number of shares of a foreign company traded on US stock exchanges, while GDRs are listed on the London Stock Exchange (LSE).

Before investing, be sure to research and understand the risks and regulations associated with each option.

Invest in Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs) are a popular way to invest in India from the US. ETFs are a good investment option for foreign investors.

To begin investing in ETFs, you must open an account with either an international brokerage firm regulated by the US Securities and Exchange Commission (SEC) or a SEBI-registered Indian stockbroker. You can open an account with well-known Indian brokerage firms such as Zerodha, Sharekhan, or Motilal Oswal. International brokers like Interactive Brokers, which have a presence in the NSE, also allow you to trade in Indian shares, options, futures, and indices.

When investing in ETFs, you can buy shares of companies listed on US or UK stock exchanges through American Depositary Receipts (ADRs) or Global Depositary Receipts (GDRs). These receipts are offered by some brokerage firms and are listed on the New York Stock Exchange (NYSE), NASDAQ, and the London Stock Exchange (LSE).

Some popular India-focused ETFs include:

• IShares MSCI India ETF (INDA)
• WisdomTree India Earnings ETF (IXSE)
• Franklin FTSE India ETF (FLIN)

You can purchase these ETFs from independent brokerages like Interactive Brokers or TD Ameritrade for a low commission fee.

It is important to note that, as of August 2021, trading access to the Indian financial markets is only available to Non-Resident Indians (NRIs) and Financial Institution Intermediaries (FIIs).

Invest in Exchange-Traded Notes (ETNs)

Exchange-traded notes (ETNs) are a type of unsecured debt security that tracks an underlying index of securities and trades on a major exchange like a stock. They are similar to bonds but do not pay interest. Instead, the prices of ETNs fluctuate like stocks. ETNs are typically issued by financial institutions and base their returns on a market index.

ETNs are traded on exchanges on trading days, meaning investors can sell their ETNs provided there is demand. They are also traded on major exchanges such as the Bombay Stock Exchange or National Stock Exchange.

ETNs are a good investment option for foreign investors. An example of a popular ETN is iPath MSCI India ETN (INPTF).

• The investor does not need to pay any short-term capital gains tax.
• Accurate performance tracking.
• Access to certain markets.

However, it is important to note that ETNs have less trading volume than ETFs, making them more illiquid. They also have default risk since the repayment of the principal is dependent on the issuer's financial viability.

Frequently asked questions