How can Citizens/Residents of India invest in U.S. Equity Markets

11/3/2016

Friends or relatives residing in India periodically ask me about how they can invest in the US equity markets. How can they invest in things like a ultra-low cost S&P 500 ETF or Berkshire Hathaway or Google etc. Well, it is not only possible, but quite streamlined.

Indian citizens residing in India are allowed to invest up to $250,000 every year overseas as per this notification issued by the Reserve Bank of India (RBI):

https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10192&Mode=0

This means that a family of 4 can invest up to $1 million overseas in a given year.

There are a few U.S.-based discount brokerages like Interactive Brokers, TD Ameritrade,
Charles Schwab International Account through which Indian citizens residing in India can set up an account and trade U.S. stocks, mutual funds and ETFs. No US mailing address is required. Note that these accounts can be opened by citizens of most countries.

In fact, Interactive Brokers has a specific account type that allows Indian Residents to trade overseas. To start an application click here. The application materials need to be sent via email to this address: newaccounts.in@interactivebrokers.com. Their customer service number in India is +91.22.6128.9888. The Director of Sales in India is Ankit Shah. His phone number is +91.22.6128.9836, and his email address is ashah@interactivebrokers.com.

Interactive Brokers (IB) is one of my favorites. Not only can one trade US stocks at super low commissions with them, IB has made the most inroads into allowing global trading with some of the lowest frictional costs. Through a US Interactive Brokers account one can buy stocks in most of the major markets around the world. Thus, opening an account with them opens up far more than the US markets for Indian investors.

While the Indian markets offer plenty of compounding opportunities, it is not a bad idea for Indian investors to have atleast a small portion of their assets allocated to other geographies. US brokers and ETFs have some of the lowest frictional costs on the planet. And us compounders know all about keeping frictional costs low.

Note: I am not compensated in any way by any of the brokerages mentioned in this blog post.

11 Comments

Leon

11/4/2016 12:47:37 am

Hello Mohnish,

Isn't Interactive Brokers more for active traders? Because they charge a monthly activity fee of $10 as described here:

https://www.interactivebrokers.com/en/index.php?f=4969#monthly-activity

Mohnish Pabrai

11/4/2016 10:41:45 am

Hi Leon… You are almost right. While IB has some of the lowest trading costs around and is consistently rated highly by third parties, they do have that pesky $10 minimum monthly fee. It is worth noting that the $10 minimum monthly fee is waived if the value of your account is equal to or greater than $100,000. The fee is also waived for the first three months. For us compounders who like to "set it and forget it" if one 's account balance is expected to be less than $100,000, the other choices may work better. So, open a Schwab or TD Ameritrade account. If you find that your annual costs (including all commissions) are under $120/year and your account balance is less than $100,000, stay with them. Otherwise, IB is your friend.

sai

11/5/2016 12:28:44 pm

Hi Mohnish,

Thanks for sharing. Just wondering are we allowed to trade Future market such as E-mini S&P ? . Also , how to send dollars . Which bank allows to wire dollars to them if we give Indian rupees ? Appreciate your inputs and time

11/5/2016 06:01:02 pm

Good questions. I do not know the answer on trading futures, but RBI may not care how or what you invest in. Best to check with a CA. Regarding wiring dollars, ask your bank manager.

Deepak Shenoy link

11/6/2016 08:46:44 am

You can't trade futures as margined trades arent allowed. You can write covered calls, and full cash secured puts. You can buy options. You can't do spreads. You can buy etfs even inverse etfs. If you buy bonds then I think there is a tax deduction on the interest paid before it comes to you.

Rahul Deshmukh

11/7/2016 02:20:37 pm

Monish,

At some point are you planning on doing a POST MORTEM of your invest in Horse Head Corp (ZINC). One of your quotes that resonates in my mind was how frugal the management of ZINC was. They even did not wast the paper of their annual report and had information all the way to the back cover. It was a powerful statement. But in hindsight was it feels like penny wise pound foolish. Many of the investors would love to hear your thoughts on your thesis. This was probably one of he largest "Non Cloner" investment on your part and as a result the post-analysis coming from the horses mouth become all the more important.

11/7/2016 10:11:11 pm

Thanks Rahul. Every year I do post-mortems on the good, bad and ugly with my investors via the annual meetings and annual letters. There was an extensive Horsehead post-motem in one of my letters and I answered several questions on it during our annual meeting. All my investors have received an extensive post-mortem on Horsehead.

So, for the constituency that I have responsibilities to (my investors), it was comprehensively covered. Horsehead was never offered as a "stock tip" to the general public by me. If anyone invested in Horsehead, including myself, they are themselves 10,000% responsible for that decision themselves. And they need to do their own good, bad and ugly post-mortems if they choose to.

Anyone who invests in any stock need to do their own research/due diligence and are themselves fully responsible for the outcome. All the best.

11/7/2016 11:20:40 pm

Thank you Monish. I completely agree that every investor should do their own due diligence. The reason I asked this question was many of us, who are new to investing look up to legendary investors for insights NOT on what they invest in but what was their rationale for the investment. Those insights are more powerful in understanding the thought process of great minds. Furthermore, you learn a lot more from the analysis of mistakes that were made- things like when the crack were visible (if any), what were the next steps- hope for the best or abandon the ship, etc.

In case of BRK, when wells fargo stumbled most of us were not interested in if WB will add funds to WFC or bail out but the rational behind the events and the decisions made based on the information available.

11/8/2016 12:27:03 am

I would like data on many past and present investments made by several prominent investors. Much is not available in the public domain and I have grateful for whatever is in the public domain. But I also recognize that most are not in the business of providing details of specific investments to Joe Public. Hence I've rarely (if ever) requested them for these publicly or privately. Am happy with whatever is there.

My 2 cents about WFC: Complete non-event. Five years (or even 1-3 years) from now, it's impact on Well's moat will be zero or close to zero.

Nitiin A Khandkar link

11/9/2016 08:46:08 pm

Mr. Mohnish,

Your article is succinct, to the point, and quite useful. I have myself been asked this question many times by investors in India, and must confess, I have struggled to answer the same, to the extent it relates to the mechanism of actual investing.

One suggestion. It would be quite helpful to Indian investors, if you could include contact details of TD Ameritrade and Charles Schwabe in India, so that a comparison of services and costs of all three can be made. I know that an interested investor can and should find out on his own. But since you presumably have looked at all three, and the info may readily be available with you, you readers would appreciate the same. Thanks!

11/10/2016 04:34:12 am

To the best of my knowledge the others do not have any offices in India. I did provide links to their websites so you can compare and contrast. You can also google "best US discount brokers" etc. and read the various annual comparisons done by Barron's etc.

All three are very good. You will not be disappointed by choosing any of them.

How can Citizens/Residents of India invest in U.S. Equity Markets

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Mohnish Pabrai

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