Buying US stocks? Know these SECRETS first

 Intro

Convert Facebook, Tesla and Amazon stock prices in INR and see

People don't have portfolios as big as the price of 1 stock.

Now the question that comes is

If the broker runs away with the stock, what do you do?

It would have been fine if it wasn't for this big problem.

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Investing in US stocks has its own benefits.

But the losses are great too.

So do you invest or not?

If you want to then all those charges that are levied

And how you circumvent them

And most importantly,

There are a few "hidden" things

That you need to know about before investing.

Welcome, to the channel.

This is Money-Minded Mandeep.

Let's begin.

[Intro Music]

Why direct US stocks?

The first question is, why do we need to buy US stock?

A few days back, I told you about International Mutual Funds,

I didn't like many options.

But I liked some options

Because the charges and taxes are both less.

So the simple answer to this question is

For most retail investors,

Mutual Funds are sufficient.

But this does not mean

That US stocks are not beneficial.

The first benefit is ETF.

You see, US stocks are just an excuse

The real reason is to buy ETFs.

So ETFs are Exchange Traded Funds

They are similar to Mutual Funds.

They also have basket of stocks

Or a basket of other securities.

But there are a few differences.

Mutual fund units are not traded on the stock exchange.

But ETF units are traded on the stock exchange.

And because there isn't a lot of participation here,

So ETFs have an issue of liquidities.

So chances are even if you buy them,

There may be a problem in re-selling them.

But in the US,

Along with passively managed ETFs

There are actively managed ETFs as well.

These can be of different types.

You will find sectoral ETFs,

Tech ETF, Pharma ETF, FMCG ETF,

And you will find ETFs on different themes as well.

For example, ESG ETF

And because participation is more there

There is not much of a problem with liquidity.

If you look at some popular US ETFs

Their daily volume is very high.

That suggests, there will not be a liquidity issue here.

So my personal opinion is

These fan companies which have a lot of hype today,

I can find better investment opportunities

In relatively smaller companies.

But the biggest challenge is

That it is a foreign country,

The market operates differently.

Their political and social conditions are different.

And there are many other companies

Whose names I've never heard before.

It's better if I analyse a sector

Or pick a theme

And take ETFs based on that.

If it is a passively managed ETF

Then it will track an Index.

If it is an actively managed ETF,

Then the burden of selecting a company is not on my shoulders,

It falls on the Fund Manager.

And because the maintenance cost of ETF is very low

Its Expense Ratio is much less than Mutual Funds.

Second Reason.

If you want to make your own portfolio,

Which can be risky.

But if you wish to make one, you can.

So you should have a US stocks account.

Pros of US stocks

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I would like to talk about the advantages

And if you already knows this

Maybe you've seen the previous video

Then you can skip through the timeline,

and go to the next chapter.

The first advantage is Global Diversification.

I gave you an example of this the last time too.

A few months ago, the Chinese stock market crashed badly.

But the Indian and US market didn't crash because of it.

What I mean to say is

Because of one country's single event,

If their stock market falls

It is not necessary markets of other countries fall too.

So if you globally diversify your funds,

Then the country risk reduces a little.

Second advantage.

Opportunity to invest in global leaders.

Because let's face it,

The global leaders

None of them is listed on the Indian Stock Exchange.

One more advantage is Currency Depreciation.

Because when you invest in US stocks,

You invest in the company and the US Dollar as well.

So even after holding your stock for five years

If you sold your $100 stock for $100, at 0% profit

Because when you were buying it

The dollar could have been ₹70

And when you are selling it and bringing money to India,

The dollar could be ₹80.

There are a few ifs and buts in this logic,

Which I told you the last time.

It is not necessary that

The dollar will keep increasing by 4-5% against the rupee every year.

So if you are only fascinated because of this reason,

Then your priorities are wrong.

If you are buying a stock or an ETF

That means you are investing in a business.

Priority number one should be

That the business grows

And not to make the US dollar grow.

This currency depreciation advantage

You can consider it as secondary.

Cons of US stocks?

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These were the advantages, there are many disadvantages too.

The firs one is

You will stay in India

And keep track of the US economic and political conditions.

Study its market and stay updated at all times.

Which can be a very daunting task.

The second disadvantage,

Everybody knows the fan companies

If you are going to study less popular companies,

Then their fundamental analysis

Keeping track of the management

Finding a good company in the first place

All of this will be a daunting task as well.

Next disadvantage is taxes.

Now this is different from mutual funds.

If you sell the US stocks before 2 years,

It makes for Short-term capital gain

All of which will be added to your income

And you will have to pay tax according to the slab.

So if you come under the 30% slab,

Then you have to pay 30% income tax.

But if you hold it for two years and then sell

It becomes a long-term capital gain.

You have to pay a 20% tax on this as well.

After indexation.

This tax is 10% in Indian equities.

Where you don't have to pay tax on the first ₹1 profit.

So if you are going to invest in US stocks,

You have to pay double the taxes.

This tax rule is an Indian Tax rule.

You have to pay it to the Indian government

Not the US government.

Because the Double Tax Avoidance Agreement,

DTAA, has been signed by both countries.

Because of this, you have to pay tax twice.

This was only about capital gain

If you hold shares,

You will get a dividend too.

So the dividend income

You will get money after 25% tax is cut on it.

You can think of this as TDS.

The US broker will cut this 25% tax.

But the speciality of TDS is that

When you file your ITR

You can claim that TDS.

You won't have to pay double tax

And if your total tax payable

Is lesser than that amount,

Then you will get the extra money back as well.

Now, the final disadvantage.

Which is no longer there are the charges.

This was such a dealbreaker

That until today, I never made a video on US stocks.

Because I personally found it senseless

To make investments this way

Or recommend you to do it.

Who can Invest?

Before I tell you the logic behind the charges,

I have an important question.

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Wo should invest in US stocks?

Or who can?

One who knows all the pros and cons I told you about.

Who is ready to invest a substantial amount.

Because for ₹10,000 or ₹20,000 or ₹50,000

You shouldn't take so much pain.

It is not like you are thinking of not investing in India

And invest everything in US.

The fact of the matter is

Understanding Indian companies,

Finding them, researching them

Is way easier than studying US companies.

And more importantly,

You will find more opportunities in developing countries

Compared to a developed country.

So while following your asset allocation

You can invest a substantial amount abroad

Then you should think about this.

And lastly, if you are doing so,

You have to timely rebalance your portfolio.

Many people will not sell their US holdings because of tax

They think they will save tax and rebalance later.

By doing so you make your portfolio risky.

So if you are fulfilling these three conditions,

That means you are ready to invest in the US.

[Music]

Process to buy stocks

Now let's talk about the process to invest in US stocks.

If you want to invest in any US company,

You should have a Demat account

With a US broker.

There are some US brokers who

Have set up offices in India.

But their services or charges

Have never motivated me to open an account with them.

Because their account opening fee

Account maintenance fee

Minimum balance conditions

And most importantly, their brokerage

All of it is very high.

And this is why

Only HNIs or Institutions invested out of India until now.

I didn't want to pay so many charges to invest.

This is why I never considered it.

But finally, there is one solution.

Because there's a solution, I recently planned

That I will allocate some money in US stocks

And for that, I'm using the 'IND money' app.

Which by the way is the sponsor of the video.

I am not talking about it because it's the sponsor,

But because it has been working for a long time

But I didn't start using it sooner because

Charges were levied even while using the app

Which were not in their hand.

These charges have recently become 0

Because of which my interest is back

Otherwise, I would have made a video a long time ago.

Let's understand how IND money works.

This is not a US broker.

This is an Indian start-up

Which has tied up with a US broker.

That broker is Drive Wealth.

And how SEBI governs the brokers in India,

In the US, FINRA governs the brokers.

FINR is Financial Industry Regulatory Authority.

So if you make an account on IND money

In the backend, an account will open on Drive Wealth.

Drive Wealth is a reputed broker in the US.

It is regulated

so don't have to worry about your stock or money.

Let me tell you what the problem was

That I never thought of investing.

Let's talk about the small problem first.

Account opening fee and Account Maintenance.

This is not in rupees that ₹100 or ₹150 is enough.

This was in Dollars.

But it would have been fine if it wasn't for the big problem.

To invest in US stocks

The money in your bank

You will have to send it to your broker.

The broker is in the US.

That means the money is crossing the border.

To do this, the bank charges ₹1500-₹2000 flat.

Whether you want to transfer ₹10 or ₹10,000

You have to bear this flat fee.

You also have to pay 18% GST on this flat fee.

Along with this, you have to pay high brokerage

And high exchange rate.

For example, you sent ₹10,000 to the US

₹2,000 will go to the bank.

When you use the ₹8,000 to buy stocks,

You will have to pay brokerage.

So in order to invest ₹10,000

You have a 20% loss on the first day.

So what did IND Money do?

They removed the bank from the equation.

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When you make an account on IND Money,

A savings bank account opens with it.

So the process is that from your existing bank account,

You will transfer money to your savings account

For which you don't have to pay any charges.

Then the new savings bank account

You will send money from it to the US Drive Wealth account

Because of this process

The ₹1,500-₹2,000 fees your bank would charge earlier

You are not exempt from it.

And because this is a savings account

Your money won't sit idle in it

It will get some savings bank account interest.

The second thing is

Because IND money is not a broker

It cannot charge you a brokerage fee

Neither can it take a account maintenance charge.

If we talk about Drive Wealth,

IND money and Drive Wealth have a deal.

Under which you don't have to pay brokerage to Drive Wealth.

Or any account maintenance fee.

So all in all

The account opening charge is 0

The account maintenance charge is 0

Brokerage is 0

The money banks take to send money from India to the US

It is now zero.

The one charge you need to pay is

The exchange rate.

Your rupee when converted to dollars requires a fee.

The good thing in this

Banks would charge upto 2% fee

But through IND money you don't have to bear high exchange rates.

As an example, I converted ₹5,000

In exchange I got $65.42

In INR this is ₹4906

I've had the chance to make this video since last December

But I wasn't investing that time

Nor was I comfortable with the charges.

Today I finally am.

That is why I am making this video.

Very Important Points to note

You will find the link for IND money in the description.

Do check it out.

Before that here are some important points you should know.

Know the timings for the US market,

In case you feel like trading.

From 14th March to 7th November every year

The US market, according to India time

Starts at 7 pm and ends at 1:30 am.

From 8th November to 13th March

This number increases by 30 minutes.

So it starts at 8 pm and ends at 2 am.

There is something Liberalised Remittance Scheme.

In short LRS.

This basically states that

In a year, you can sell $250,000 outside of India.

That means almost ₹2.25 crores

You can send out of India

In any form, not just investment.

If you are coming back after international travel

This will be recorded in that.

So there is a good limit.

I don't have ₹2.25 crores to invest in the US

But it's still something you should know.

And one more thing you should know

This LRS rule

Doesn't apply to mutual funds.

If you invest in AMC's international mutual funds

Then you can invest not just ₹2 crores but ₹10 crores.

One more major point

Which you probably don't know

Because IND money is not a broker

They don't keep your stocks.

But where are the stocks kept?

India has CDSL and NSDL

That means, in India, a broker doesn't keep your stocks.

But in the US, the broker keeps the stocks.

Now the question comes,

What do you do if the broker runs away with the stock?

For that we have Securities Investor Protection Cooperation.

That is SIPC.

Under this you have an insurance upto $500,000

A maximum of $250,000 on your cash

And the rest as insurance on your securities or stocks.

So worst case scenario,

Even if something happens, this insurance will protect you.

Next point.

And this is a good one.

Because your stocks are being held by your broker

In this case, Drive Wealth.

Drive Wealth gives you a very good facility,

You can buy fractional shares.

Casually Google the Google's stock.

Facebook, Tesla, Amazon

Convert their stock prices to INR

People's portfolios aren't as big as

The price of one stock.

So if a retail investor wants to invest

He can't buy even one share of these companies.

But interestingly,

You can buy the company's 1/10th share

1/50th share and 1/100th share.

If you have ₹100

You will proportionally get that much stock.

Now you will ask me about the dividend.

You will get the dividend in the same proportion.

It works as

A broker maintains a pool of shares of many companies

When he gets an order for a small quantity

Such 1/5th share or 1/10th share

Because the broker doesn't physically need to send the shares

The shares were with him and will remain with him.

So he reserves those fractional shares for you in the backend.

Before I wind up,

All these were the technical aspects,

If you are investing money,

Where should you invest it?

I will try to attempt to give you an answer.

Avoid herd mentality.

Everybody is buying fan companies right now,

It is not necessary you buy them too.

And understand the basic logic that

A company which is already so huge,

My height is 5'11"

Will I double in height in the next 10 years?

Will I become 10 feet tall? Not at all.

But a kid who is 2 feet tall today,

He will surely double his height in the next few years.

Moral of the story is

Growth opportunities are in relatively smaller companies.

Because you and I are retail investors,

Our bets can go extremely strong.

That is why my personal strategy is ETFs.

Do check out IND money

Link is in the description.

What ETFs are and how they work

If you want a separate video on them, tell me in the comments.

But I hope this video was helpful to you.

I will meet you in the next video very soon.

Sorry, there was a delay due to personal reasons.

I'll try to maintain the frequency now.

Bye.