How to Invest in Nasdaq from India?

What is Nasdaq?

The NASDAQ is the American stock exchange and stands for National Association of Securities Dealers Automated Quotations. This was the first electronic stock exchange founded in 1971. This exchange enabled investors to buy and sell stocks quickly and transparently. 

NASDAQ is the second largest stock exchange in the world in terms of securities value. It has more than 3,300 companies listed on the NASDAQ stock exchange. Today, this exchange is the global electronic marketplace where the world’s largest technology companies are listed, like Amazon, Apple, etc. Also, companies from different sectors like capital goods, finance, healthcare, consumer durables, consumer non-durables etc., are available. 

NASDAQ stock exchange comprises three stock indices. They are –

• NASDAQ Composite – This main index is widely known and well reputed besides S&P 500 and Dow Jones.
• NASDAQ 100 – This index comprises 100 substantial non-financial organisations. However, these organisations constitute more than 90% of the NASDAQ Composite Index’s weight. 
• NASDAQ Financial 100 – This index comprises financial organisations. 

How to Invest in Nasdaq from India?

You can invest in NASDAQ from India either through direct or indirect investment. The following are the ways to invest in NASDAQ from India –

Direct Investment

Direct Investment means you directly buy stocks listed on the NASDAQ indices. To invest in these stocks, you require an overseas trading account that can be opened with a domestic or foreign broker. 

Opening Overseas Trading Account with Foreign Broker

Many domestic brokerage firms have tie-ups with US stockbroking firms to facilitate trading in US stocks. These domestic brokerage firms act as intermediaries and execute the trade on behalf of Indian investors. To open an overseas trading account, you must submit a duly filled account opening form and KYC documents. Also, there are certain declarations and forms to be submitted to the authorised dealer. However, it is essential to note that these brokerage firms have certain restrictions on the number of trades, type of investment, etc. Furthermore, the cost is high due to the brokerage fees, currency exchange rate and conversion charges. Additionally, some brokerage firms have a minimum balance requirement in the trading account. 

Opening Overseas Trading Account with Domestic Broker

You can directly open an overseas account with an international brokerage firm who have a presence in India to invest in US stocks. There are no restrictions on the number of trades or type of investment in this trading account. However, there is a risk of high brokerage fees, currency conversion charges and high minimum balance requirements. Some foreign brokers operating in India are Ameritrade and Charles Schwab. 

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Indirect Investment

The following are the ways to invest in NASDAQ indirectly – 

Mutual Funds 

There are many mutual funds available that invest in stocks and securities of global companies. These funds are called international funds. Through these funds, investors can get the easiest access to stocks listed on NASDAQ. To invest in these funds, you can select any international fund where underlying securities invest in NASDAQ companies. Moreover, this option has no additional brokerage charges, currency conversion charges, or a minimum balance requirement. 

ETFs

Investing in US ETFs or Indian ETFs that invest in NASDAQ indices can give access to international markets. You can select a fund where the underlying benchmark mimics the performance of any NASDAQ index. Also, investors can easily invest in ETFs through a foreign broker, an Indian broker, or an Indian mutual fund house. However, before investing, it is always advisable to check the brokerage fees and conversion charges and select the one with the least expenses. 

Things to Consider Before Investing in Nasdaq

The following are the things to consider before investing in NASDAQ

1. The Liberalised Remittance Scheme

The Liberalised Remittance Scheme (LRS) allows Indian investors to remit up to $250,000 per year. This amount includes investment and expenses. Investors can invest in any US financial instruments, real estate, deposits, etc. Also, they can spend money on travel and other expenses. Simply put, investors must have their expenses and investments in USD within the limit of $250,000 per annum. Any amount beyond $250,000 will require RBI permission. 

2. Geographical Diversification

Investing in NASDAQ allows investors to participate in global companies. Also, there are some ETFs that invest in global companies giving Indian access to companies all over the world. However, investors must understand the global factors while investing in NASDAQ. 

3. Foreign Exchange 

Foreign exchange risk exists while investing in NASDAQ or US markets. The impact of currency rate and foreign exchange in a geographically diversified portfolio is high. While investing or withdrawing investments, currency fluctuation can impact the investment value. Also, while converting INR to USD and vice versa may include conversion charges. Therefore, investors must consider the foreign exchange risk while investing in NASDAQ. 

4. Investment Goals

Another aspect that investors can consider while investing in NASDAQ is their financial goals. It is an important aspect of everyone’s financial planning. Defining the financial goals will help in planning and investing accordingly. For all foreign goals, investors can choose products that will help them achieve goals efficiently. For instance, if an individual plans to save for the child’s foreign education, the portfolio should reflect that expectation. Therefore, proper planning and diversification of investments will help in generating returns. 

5. Investment Cost 

The cost of investment while investing in US markets is comparatively higher. To invest in NASDAQ stocks, investors require a foreign brokerage account. There are certain charges associated with these broker firms like account opening chargers, transfer fees, transaction charges, currency conversion charges etc. Therefore, investors must be aware of these costs while investing in NASDAQ, as all these charges can impact the returns. Also, investors tend to earn less if not appropriately managed. 

6. Investment amount

To invest in NASDAQ, investors can start with a small amount until they understand the market properly and get the hang of it. Once they are comfortable, they can gradually increase the investment amount.

7. Taxation

Taxation is an important parameter to consider while investing in any asset. Also, while investing in foreign markets, it is essential to understand the tax implications. India has a Double Tax Avoidance Agreement with the USA which prevents double taxation of the same income. Investment in NASDAQ attracts two types of taxes.

8. Dividend Tax

For US investors, the US stock dividends are taxable at a flat rate of 30%. At the same time, for Indian resident investors, the dividend is taxable at 25% per the tax treaty between India and US. Therefore, Indian investors can claim this tax as Foreign Tax Credit while filing their income tax returns. 

9. Capital Gains Tax

Capital gains tax does not exist in the United States. However, Indian residents are liable to pay taxes on foreign capital gains in India. 

• Long-Term Capital Gains (LTCG): The capital gains that arise from holding the investment for more than 24 months or two years attract an LTCG tax of 20% with an indexation benefit. 
• Short-Term Capital Gains (STCG): The capital gains that arise from holding the investment for less than 24 months or two years attract STCG tax. These gains are taxable as per the investor’s income tax slab rate. 

Additionally, investors must also consider Tax Collected at Source (TCS). As per rule, all foreign remittances above INR 7 lakhs per annum (fiscal year) will incur 5% TCS. This upfront tax is collected, and investors can claim it during annual tax filing. Investors must understand that TCS is not an additional expense to them. 

Frequently Asked Questions

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