A Guide To Investing In Nasdaq Etfs From India

The NASDAQ stock exchange is a well-known US-based stock exchange offering a range of investment opportunities to individuals. For Indian investors, NASDAQ presents an attractive option to diversify their portfolios beyond the Indian stock market. While there are no US stockbrokers in India, there are multiple ways to invest in NASDAQ ETFs, including direct and indirect investment options. Direct investment can be done by opening an overseas trading account with a domestic or foreign broker, while indirect investment can be done through mutual funds or ETFs.

Direct investment in Nasdaq stocks

• Open an overseas trading account with a domestic broker: Many domestic brokers in India have tie-ups with stockbrokers in the US. They act as intermediaries and execute your trades. You can open an overseas trading account with any such broker. However, you might have to submit several documents to open this account. It is important to note that this option may have restrictions on certain investment vehicles or the number of trades you can make. The cost of investing can also be high, considering brokerage and currency conversion charges.
• Open an overseas trading account with a foreign broker: You can also open an overseas trading account directly with a foreign broker with a presence in India, such as Charles Schwab, Ameritrade, or Interactive Brokers. Ensure that you understand the fees and charges before opening the account.
• Wire funds to the US: As an Indian resident, you are allowed to wire funds to the US under the RBI's Liberalized Remittance Scheme, which lets you remit up to $250,000 per year, per person.
• Buy fractional shares: Some of the stocks listed on the Nasdaq, such as Amazon, can be very expensive. However, you can now buy fractional shares, which means you can get started by investing as little as $1 in your favourite companies.

It is important to remember that direct investment in Nasdaq stocks may incur higher costs due to brokerage and exchange rate charges. Therefore, make sure you are aware of all the expenses before proceeding.

Invest in US ETFs that track the Nasdaq 100 index

There are several ways to invest in US ETFs that track the Nasdaq 100 index from India.

Firstly, you can open a US brokerage account with a technology platform like Vested, or a foreign brokerage with a presence in India, such as Charles Schwab, Ameritrade, or Interactive Brokers. These platforms allow you to invest in ETFs that track the Nasdaq 100 index, such as the Invesco QQQ Trust, which includes companies like Amazon, Apple, Microsoft, Meta (Facebook), Netflix, Google (Alphabet), and Tesla.

Another option is to buy ETFs available in India that track the Nasdaq 100 index, such as the Motilal Oswal Nasdaq 100 ETF or the ICICI Prudential Nasdaq 100 index fund. These options do not require you to open a new US brokerage account, but your returns may be impacted by tracking errors.

Additionally, you can consider investing in international mutual funds that provide exposure to US ETFs. These funds typically invest in a mutual fund available in the US, which in turn invests in the Nasdaq 100 index. However, this approach may be more costly due to higher expense ratios.

It is important to note that investing in US ETFs from India may involve higher costs, including brokerage and currency conversion charges. Therefore, it is essential to understand all the associated charges before proceeding.

Furthermore, as an Indian resident, you can take advantage of the Reserve Bank of India's (RBI) Liberalized Remittance Scheme, which allows you to remit up to US $250,000 per year for investments in foreign securities.

Before investing, ensure that you have done your research and are aware of the risks and regulations associated with investing in US ETFs from India.

Buy ETFs in India that track the Nasdaq

If you are an Indian investor looking to diversify your portfolio, investing in the NASDAQ can be a good option. Here are some ways to buy ETFs in India that track the NASDAQ:

Motilal Oswal NASDAQ 100 ETF or ICICI Prudential NASDAQ 100 Index Fund

These ETFs are available in India and invest in US indexes. You can invest in these without opening a new US brokerage account, although your returns may be impacted by tracking errors.

IShares MSCI India ETF (INDA)

With $4.35 billion in assets under management, INDA is the largest India-centric ETF. It provides exposure to select large- and mid-cap companies in India, with the highest exposure to financials, information technology, and energy. The ETF has an expense ratio of 0.65% and is down by 9.03% year-to-date.

WisdomTree India Earnings Fund (EPI)

The WisdomTree India Earnings Fund offers a diversified portfolio of Indian companies across market caps, with a large-cap tilt. It follows a valuation-centric approach to investing in India, with allocations across 10 sectors, including materials, energy, financials, and information technology. The fund has an expense ratio of 0.84%.

IShares India 50 ETF (INDY)

The iShares India 50 ETF is the third-largest India-centric ETF, benchmarked against Nifty 50, India's most popular large-cap index. It provides passive, single-window access to US investors to the top 50 companies in India. The fund has assets under management of $578 million and an expense ratio of 0.89%.

First Trust India NIFTY 50 Equal Weight ETF (NFTY)

Unlike most popular indexes, which are market-cap based, the First Trust India NIFTY 50 Equal Weight ETF tracks the Nifty 50 Equal Weight Index. This index provides exposure to all 50 companies of the Nifty 50 Index in equal proportion (2%). The fund is currently down by 4.5% year-to-date.

Columbia India Consumer ETF (INCO)

The Columbia India Consumer ETF focuses on India's growing consumer industry. It tracks the Indxx India Consumer Index, which includes companies in the auto, food products, beverages, media, and household products sectors. The ETF is currently down by 4.03% year-to-date.

Other Options

Other ETFs that provide access to Indian stock markets include the iShares MSCI India Small-Cap ETF (SMIN), Invesco India ETF (PIN), Franklin FTSE India ETF (FLIN), and VanEck India Growth Leaders ETF (GLIN).

Invest in international mutual funds

If you are an Indian resident who is not interested in investing directly in foreign stocks, you can instead invest in international mutual fund schemes that have exposure to international markets and invest in foreign stocks. There are several international exchange-traded funds (ETFs) that allow access to the Nasdaq and other leading global indices. These investments would be made under the overall limit of the Liberalized Remittance Scheme (LRS), which allows an Indian resident to invest up to $250,000 per financial year in foreign securities.

There is no reporting requirement under the new framework for investing in international mutual funds (i.e. half-yearly filing of Form OPI is not required). However, you will have to pay an annual expense ratio (fees charged to manage the fund). The expense ratio of these funds tends to be higher, as it includes an additional expense charged by the underlying international schemes they invest in.

You can invest in international mutual funds by opening a trading and Demat account with a broker registered with the IFSC. You will need to transfer funds from your Indian bank account to the broker's IFSC-registered account, as deals on the exchange are made in dollars instead of Indian rupees.

There are several apps available to assist Indian investors in making investments in the US stock market. However, due to regulatory restrictions, some apps might not allow intraday trading in the US market from India.

Open an overseas trading account

To open an overseas trading account, you can choose between a domestic or foreign broker.

Opening an Overseas Trading Account with a Domestic Broker

Many domestic brokers have tie-ups with stockbrokers in the US and act as intermediaries to execute your trades. You can open an overseas trading account with any such broker, but you might have to submit a set of documents to open this account. This option may have some restrictions based on the brokerage firm, such as limitations on certain investment vehicles or the number of trades you can make. The cost of investing through a domestic broker can be high, considering brokerage and currency conversion charges. Hence, ensure that you know all the costs before opening an account.

Opening an Overseas Trading Account with a Foreign Broker

You can also open an overseas trading account directly with a foreign broker with a presence in India, such as Charles Schwab, Ameritrade, or Interactive Brokers. Ensure that you understand the fees and charges before opening the account. Conduct thorough research before selecting the best broker to suit your needs and goals.

Things to Keep in Mind

Before opening an overseas trading account, it is important to understand the regulations and procedures. Additionally, consider the different charges involved, such as account charges, brokerage, currency conversion fees, and transfer fees. Investing in foreign markets introduces an additional element of diversification to your portfolio, but it is important to remember that international stock investing has certain pros and cons. Ensure that you consider all aspects and invest according to your financial goals and risk tolerance.

Frequently asked questions