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.

28 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.

Sumit Uppal

8/30/2017 08:18:14 am

Indian residents cannot open trading accounts with TD Ameritrade or any other Foreign broker as then they will have to withhold tax on brokerage payment required under section 195 of Income Tax Act.

8/30/2017 08:19:00 am

Indian residents cannot open trading accounts with ameritrade or any other Foreign broker as then they will have to withhold tax on brokerage payment required under section 195 of Income Tax Act.

Pranav P Patki

1/8/2018 09:40:56 pm

Is it legal yo open account with brokers you mentioned considering both indian laws & laws of land i plan to invest?

Are this good if i plan to just buy & hold & not intraday trade?

Do they provide with research?

mickey link

2/17/2018 08:05:06 pm

Hello Mr Pabrai,
So is the other way possible?
I am a NRI living in USA and was wondering if I would be able to open an IB account and then buy securities in India ?
Thanks,
mickey

Sam

2/20/2018 05:27:55 am

Hi Mohnish,

What happens in case a broker like IB had to go bankrupt? Would it be possible to liquidate and recover the ENTIRE value of the holdings Indian account holders have with them?

Kind regards,

Sam

Ajay

3/12/2018 10:34:07 am

How can a NRI from Dubai invest in US Stocks (ETF) without going through the Indian Bank / Brokerage route.

Indian US funds charges are exhorbitant and they underperfom index anyways.

Regards

Akshay Kumar

7/20/2018 06:59:40 am

I was advised to open am Indian brokerage account with ties to US markets. On further researching I found out that many negative feedbacks were found like one with ICICI not returning the investors money and India Infoline giving your details to other party whobpester you to invest in their equities, one even Kotak investing your money without your knowledge.

Please advice.

About these international brokers my only doubt is are they strong and safe or WILL they go bankrupt.

Take care.

Kuljasbir Singh

6/24/2018 12:32:27 pm

Hi All , I am also trying to open account with Fidelity or TD Ameritrade and contacted there support agents. both of them say indian cannot open account with them , if you are NRI and resident of US you can.

I am currently based in Dubai. any leads ?

7/20/2018 06:46:43 am

I am from Dubai as well, I left a comment here which is similar to your statement. Which brokerage are you using?

7/20/2018 06:45:22 am

Dear Mr.Pabrai,

You are inspirational, so many thanks for taking your time to answer the queries.

My questions is simple,
Which is the best broker to invest in US markets? And is it safe?

I been living outside India and been exposed to US products which gives me the information to such products as well as their exposure. Investing in India has options but I want to grab the opportunities in US. Many have adviced to open a brokerage account in India who have tied with US such as India Infoline or Kotak or ICICI but there are negative feedbacks to them as well. Not to mention many people having problems with them, some even including the fact that Kotak invested their money into other equities without their knowledge. ICICI also had never given their investors money and the recent scam from their executives adds a bad image too.

You mentioned Interactive Brokers but is it safe? Do excuse the silly question.

Take care of your health sir, you are a constant motivation to many.

Sincerely,
Akshay Kumar.

7/20/2018 06:52:36 am

Also Mr.Pabrai, I forgot to include, is interactive brokers strong as firm?

Once again thank you for your time and patience.

I hope my queries weren't confusing.

Sincerely,
Akshay Kumar.

Mahesh Patil

8/18/2018 09:05:53 am

I am also interested in knowing is safe too for Indian investors.

Rajesh Vyas

10/7/2018 02:08:27 am

Hello Mr Pabrai, I'm resident Indian, How the Demat Account with Interactive Brokers will be treated for tax purposes in both countries?
gains from Equity or Mutual fund of USA companies will be taxed in USA? and again in India - so expense ratio +transaction+ Currency conversion charges+ double taxation- ?will it not make it very expensive?
There is Treaty with USA and India avoiding double taxation, DTAA, not very clear about the taxation on the gains acquired in USA.
Any Tax deduction at source?
In the Dividend there is tax deduction at source from 30 to 15% but what about other monetary gains, short term and long term.
Need to fill some form?
Thanks
Rajesh

jayesh patel

12/7/2018 09:54:28 pm

is it not allowed to open an account with other brokers directly like Suretrader, Centerpoint securities for da/ Active trader?
is short selling is allowed in US Stock Market for an Indian Active Trader?

Ellie Parson

2/21/2019 03:29:46 am

Thanks for sharing such useful thoughts on the real estate investment. Investment in real estate is a stable platform for most of the investors. However, foreign nationals should be very careful while investing in the USA. Such investors are unaware of the market situation of the USA real estate business. So, foreign investors should hire experienced professionals prior to investing in real estate. Besides, one could also invest passively in the real estate through a real estate investment company which is one of the most stress-free ways of investment. Readers may like to visit
https://landwin.com/investment-opportunity-heading/investment-plans/joint-venture-partnership/

James link

2/28/2019 10:16:44 pm

Hi Team,
This information is very informative and Thanks for sharing...

Abhishek Chaurasia link

5/11/2019 04:53:15 am

Thank you for giving me useful information
http:www.fundmaker.in

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

Leave a Reply.

Mohnish Pabrai

Archives

Categories

Contact