ALL ABOUT INVESTING

IN US STOCK MARKETS
A BEGINNER’S GUIDE
 TABLE OF CONTENTS

I. INTRODUCTION

II. TOP BENEFITS OF INVESTING IN US STOCKS

III. DIVERSIFICATION - GET GLOBAL ADVANTAGE

IV. REALIZING GOALS BY INVESTING ABROAD

• Children’s education

• Owning a dream home in US

• Medical treatment abroad

• Holidaying in the US

V. US STOCK MARKET – THE FIRST CHOICE FOR

GLOBAL INVESTORS

VI. INVESTMENT OPTIONS & HOW TO INVEST

VII. RUPEE-DOLLAR VOLATILITY – THE IMPACT

VIII. OWNING FRACTIONAL SHARES

IX. REGULATIONS AND TAXATION RULES

• 5 facts about Liberalised Remittance Scheme

• Taxation of foreign stocks for individuals and ITR

reporting

• Understanding TCS on Foreign Remittance

X. US MARKET- INSIGHTS
• 5 top US indexes to track for global exposure

• Top 5 amazing facts about S&P 500 Index

• SPDR S&P 500 ETF: Things to know before investing

• 5 facts to know about Dow Jones Industrial Average

Index (Dow 30 )

2
 INTRODUCTION

A sk any successful investor for the mantra of making big

money, and the most common response will be – we keep looking
for opportunities. And, what’s a bigger opportunity than the US stock
market? Home to some of the biggest corporates in the world, the
US economy is a thriving ground for entrepreneurs, businesses and
innovation. No one with the risk-taking appetite and money should miss
the opportunity to be a part of this global market!

From Facebook, Amazon, Apple, Netflix to Google, popularly known as

FAANG stocks, you can own shares in these and other big US firms such
as Microsoft. Further, there are non-US global blue-chip companies
listed on the US stock exchanges such as Chinese giants Alibaba,
Tencent Music, Baidu and many more. The consumer-led demand in
these companies is overwhelming and it’s time to profit from their
growth.

As an investor, when you invest in the US stocks through S&P 500 index, NYSE Composite, Nasdaq
Composite or any other US indices, you have a pie of the global economy as well. The US stock market
offers the opportunity to spread your investment across bonds, ETFs and shares of some of the
biggest companies in the world.

With Apple iPhones and Samsung mobile phones most in demand

around the world, these companies must be making lots of money as
well. Therefore, won’t it be a good idea to own their shares and grow
rich with them? Being an Indian investor, this thought most probably
would have crossed your mind. If yes, relax! You too can own these
shares or those of any global company by participating in the US stock
market – the biggest gateway to investing abroad.

3
 TOP BENEFITS OF INVESTING IN
US STOCKS
T he United States is home to the world’s biggest financial
market. It is a leading indicator of global economic news and
growth projections. No wonder, it is also the top choice for global
investors for investment. Without a finger in the US-pie of stock
markets, you are not only exposing your portfolio to country-
risk, but are also losing on the opportunities the global investors
beckon.
Access to top global stocks, effortlessly
Amazon, Facebook, Microsoft, Apple and thousands of other
global names are all there in the US stock markets. Silicon Valley
and the thriving American system keeps throwing up new global
companies with spectacular regularity. Why should you not be a
part of the opportunity that these stocks provide?
Beat India-specific risk
Every investor is advised to spread risk. In other words, diversify.
Investors diversify across asset classes, across securities types,
sectors and so on. But, even then, most Indians cannot diversify
beyond the geography of India. Not only does that impose
a certain country risk, it also deprives investors of golden
opportunities in the markets as deep and wide as the US markets.
Beat Rupee depreciation risk
The Indian Rupee, as history has shown us, is falling against the
US dollar and the possibility to slide further exists as well. This
4
impacts the Rupee price of so many commodities (why go further,
let’s pick gold and oil as examples). The fall in the Rupee impacts
Indian businesses importing and exporting goods or services. As
a result, the stock market returns from stocks keep fluctuating.
Why not then cut the depreciation risk by being invested in the
currency the world trades in?
Meet your ‘global goals’
Indians are global citizens, integrated professionally and
personally into the global ecosystem. Many Indians want
international vacations, want to travel extensively, want to buy a
house in other countries, send a child for top notch international
education or, in bad times, have enough money to get high quality
medical treatment in the best medical facilities of the US. Every
time when the INR weakens against the dollar, each of these goals
become tougher to achieve. But, if you invest in the US dollar-
based securities, you cut the rupee depreciation risk for those
goals you deserve to achieve. Go for it.
Medical needs
Hospitalisation abroad is costly. Even if you are on a business trip
or a vacation, there could be certain out-of-pocket medical costs
during an international location.
 DIVERSIFICATION
GET GLOBAL ADVANTAGE
T here are good enough reasons for the Indian investors to
include the US stocks in their portfolio. For an Indian
investor who has all the money exposed only to his nation’s
economy, there is a big amount of risk – the country risk. Any
over-exposure to one single economy leaves the portfolio
vulnerable to any downturn in the economy.
The net effect of diversifying abroad is reflected in your
portfolio. When overseas markets such as the US stock market
gains and there is a downward trend in the Indian markets, the
overall impact on your portfolio is much less. The same is true
when the reverse happens, but your portfolio still remains less
impacted. This may not hold true always but diversifying across
global markets has the potential to generate a high risk-adjusted
return.
Building a diversified stock portfolio helps over the long term as
most global markets or indices are not co-related to a large extent
and thus have the potential to hedge your portfolio when the
markets move in opposite directions. Incidentally, the S&P 500
index, which is often regarded as the best single gauge of large-
cap US equities, is considered to have a very low correlation with
the Indian equity market.
5
 REALIZING GOALS BY
INVESTING ABROAD
Children’s education
Looking to send your children for higher studies abroad,
particularly the US? If the higher cost of education is holding you
back, you need not worry. Education in the US is costly but if
smartly done, is possible.
Indians have always headed to American universities. Nearly 20
per cent of foreign students studying in America are from India.
For a 4-year engineering course in the US, one has to shell out
anything above $50,000 a year or Rs 37.5 lakh per annum. This
adds up to Rs 1.5 crore over the entire duration. This is just the
tuition fees. There are other costs as well when you send your
kids abroad. From travel costs, staying to food expenses over the
entire duration of the course -- you need dollars to fund them.
A big risk for financing education abroad is the currency risk. Plus,
you want to generate the resources needed by taking advantage
of the best investment opportunities the world has to offer. By
investing in the US markets, you invest in dollars, generate dollar
returns, enjoy dollar dividends and also get access to the best
wealth generating stocks on the planet. How about a US market
SIP then?
If the rupee falls against the dollar, the cost of foreign education is
impacted. In 2011, a dollar was about Rs 45. If it falls to Rs 76, it’s
a 68 per cent fall! If the rupee falls further, on a four-year course
you will need more dollars to fund that education.
It’s time to plan now and start early if you have to send the kids
abroad. You can even open a savings bank account abroad to
park dividends and meet those costs and contain currency risk
also.
6
Owning a dream home in US
A dream home in America! Who doesn’t want to be the owner of
a prime residential address in the US? Many Indians have already
made the move.
According to US-based National Association of Realtors (NAR),
Indians had invested about $7.8 billion in prime residential real
estate in the US about three years back. In fact, Indians remain a
serious buyer of residential real estate in the US and are nearly
the fifth largest investors in real estate in the US.
A decent 3 bed-room home in the US could be available anywhere
between $1,00,000 and $3,00,000 or even higher. A 2000 sq.ft. 3
BHK apartment in Gurugram costs around Rs 1.75 crore. At the
same cost, a home in several cities in the US, including Florida,
could be yours.
Home prices are location-based and as prices fall during
economic downturns, they present opportunities for several
buyers. Prices vary as per locations in urban American cities and
Downtown locations. Also, the reasons to own a home vary as
someone will want to reside there while some others could be
using it for investment purposes by putting it on rent.
You can even put your US home on rent or keep it for short stays.
The demand for short stays is high in tourist locations. In fact, the
rental yield on short-term stays in an attractive tourist destination
can be a better option than putting it on for a long-term rent.
The rising work-from-home culture among workforce raises
demand for apartments around offices or even in far-flung
suburbs. The key to owning such a property would be dollar
earnings and wealth creation.
Hospitalisation abroad is costly. Even if you are on a business trip
or a vacation, there could be certain out-of-pocket medical costs
during an international location.
Medical treatment abroad
Medical needs are mostly not planned. The only concern at that
unfortunate time is to get well. That mostly means you need to
generate enough resources at a very short notice to fund medical
emergencies. To solve this problem, all of us are advised to buy
medical insurance policies. But, what if the medical treatment
requires one to travel abroad? Of, what if you face a medical
emergency when on a trip to the US while holidaying, visiting
relatives or visiting children?
Holidaying in the US
Going alone or taking one’s family to a long holiday in the US is
most people’s dream. From Grand Canyon to Disneyland to the
beaches in Florida, there’s so much to explore in the US for the
entire family. A 10 to 15-day trip to the US doesn’t come cheap.
A family vacation in the US could cost Rs 10 lakh upwards for a
family of four. The rupee-dollar exchange rate may also spoil the
spirit, especially when the rupee weakens against the dollar.
What better than to get the US markets to generate the money
required to fund the big US holiday? Investing in the US stocks not
only gives you the opportunity to be a part of the world’s biggest
companies but also gives you the option of investing very early
into potential winners. Plus, many US stocks are known to declare
big dividends to their shareholders.

The biggest advantage of course is you beat the perennial fall

of the value of the rupee against the dollar. Which means you
can set aside the extra money that would otherwise have been
needed to cover the rupee decline for other investments or even
spending on that US holiday.

Healthcare in the US is very expensive and could set one back by a

few lakhs in Indian rupees. According to debt.org, America’s debt-
help organisation, the average hospital bill is close to $4000 and
the average of the hospital stay is about $16000 or Rs 12 lakh in
INR! And, this obviously is not for – God forbid – serious diseases
that need extended stay and treatment.

Although it is mandatory to get international medical insurance

before you take your flight to the US, to be on the safer side,
you may need liquid funds too. There could be out-of-pocket
hospitalisation expenses that may hit your budget and, therefore,
you need money when you travel abroad.

Also, your health cover will typically reimburse hospital expenses

abroad on cashless basis. However, there could be a situation
when the individual has to pay the medical cost upfront and later
get reimbursed from the insurer. So, it is smart to have enough
dollars.

Even for Indians not travelling abroad, there could be a planned

or unplanned need to access the top-notch healthcare facilities
in the US. The health insurance policy that you have in India
typically helps you meet hospitalisation costs within the country.
Without overseas health insurance, traveling may prove financially
damaging.

While one always wishes these scenarios don’t arise, the smart
thing to do is to make investment in dollars. In bad times, it
serves a cushion by making dollars available to you. And, if the
worst does not happen, it provides you the benefit of some of the
world’s best investment opportunities.
Another plus of having investments in the US is that you can
withdraw dollars to meet the expense there. What you save is the
cross-country exchange rate which could translate into a saving
of 25 per cent or even more going by the history of rupee-dollar
relationship.

7
 US STOCK MARKET
THE FIRST CHOICE FOR GLOBAL INVESTORS

T he US stock market has all the essentials in place – the

strength of its 20-trillion economy, global firms of
China, Japan and other developed countries listed on their
stock exchanges, the high volume of trades, the huge
market capitalisation of stocks, thus providing liquidity,
transparent, yet strict financial market regulations and
above all, low-cost investing options. The good part is – you
can actually invest and own shares of all the big global
firms, irrespective of their listing or presence in India.

The US stock market is home to some of the top global

firms with the highest market cap. Of the Global Top 100
companies in terms of market capitalisation, the US share
is nearly 63 per cent and has been rising over the last
decade. Also, according to a PWC report titled, ‘Global Top
100 companies by market capitalisation 2019’, among the
top 100 corporates globally, 54 are of based in the US, the
maximum in the world.

Money making opportunities are not to be missed. The

multi-baggers of tomorrow are the sleeping giants today.
Some of the top unicorns (any privately-held start-up firm
which is valued at over $1billion is considered a unicorn
company) are US-based. Sample this – Nearly half (48 per
cent) of the top 100 unicorns valued at $1billion or more as
on 31 March 2019 were from the US. As on 31 March 2019,
there were 326 unicorns around the world.

The IPO segment in the US has already worked wonders

with several firms translating into huge profits for the
shareholders. The New York Stock Exchange (NYSE) is
considered a premier platform raising global capital by
firms. Nearly 75 per cent of all US tech proceeds raised, with
companies including Uber, Twitter, Slack and Spotify, have
been on the NYSE.

There are several regulatory bodies overlooking investors’

interest in the US. The US Securities and Exchange
Commission (SEC), a United States federal government
agency and the Financial Industry Regulatory Authority
(FINRA), a regulator of stock and bond brokerage firms,
together have some of the strictest rules in place for
financial reporting and ensuring transparency.

8
 INVESTMENT OPTIONS
& HOW TO INVEST

F or a retail Indian investor, there are several investment

opportunities available in the US markets. A retail investor can
choose to invest in mutual funds, index funds, ETFs or even use the
LRS route to buy direct equities in the US markets. Exposure to the US
markets is also recommended for the reason that investment products
such as ETFs, Index funds etc are much more evolved there and are
available at low expense ratio. Remember, costs of a financial product
eat into the returns and, therefore, holding low-cost investments help.
The Nasdaq ETF Market is a thriving platform for ETFs and there are
more than 309 exchange-traded products track Nasdaq indexes.

More than the actively-managed funds that come with higher costs
compared to index funds and ETFs, the latter are more popular in the
US. Almost all indices have their index fund or ETF’s for the investors
to invest in. For example, there will be ETFs or index fund tracking the
Nasdaq index or the Dow 30 index.

If you want to buy stocks or ETF’s directly, there are authorised

international brokerage firms that allow you to buy your favourite US
stocks sitting at home in India. Going through such brokerages makes
investing easy. Unlike the normal process wherein you need to register
with your bank, get RBI clearances, find and open a US bank account or
trading account, with foreign brokerage firms, one just has to log on,
register and with a few clicks be ready to trade in international stocks.

9
 HOW TO INVEST

If you are looking to diversify your investment portfolio across geographies, the US stock market can be a good starting point. And, if
you are wondering as to how to invest in the US stock market from India, you will be pleasantly surprised to know that the process is
extremely simple and easy to complete. You can invest in the US stocks from India or trade in Tesla shares, all from the comfort of your
home or office.

Owning shares of Amazon, Google or Apple is easier and almost similar to that of buying shares of Indian companies on stock exchanges
in India. What gives it a different shade, however, is that the buying process involves an international brokerage house and as an investor
one needs to adhere to the RBIs foreign exchange rules. But, to make sure that the investor focus remains on buying US stocks with a
click of a mouse, the entire documentation part is handled by the international brokerage firm.

What international brokerage platforms ensure is to keep the international investing easy, simple and secure with all paper-work and
authorizations from banks being covered under one roof. From getting the RBI clearances to finding the right bank account in the US and
opening an account, these international brokerage companies make it a one-stop-shop for you. Once the US stock account is opened,
with a few clicks be ready to trade in international stocks. The process of investing in the US stock market is seamless as all the paper-
work with the US-based entities is done by brokerage firms.

A typical global investing platform will involve 5 key steps before you can invest in the US stocks from India. Here they are:

1. Account Opening 4. Forex Formalities

Once you have identified the brokerage account in India for
buying the US stocks, the online registration of the account is the
first step. It's an easy, simple and quick process. One just needs
to enter details such as name, email and mobile number to start.
Once the account is created, your brokerage account also gets
created automatically.
2. Documentation
During the process of opening the account, you will need to
furnish certain documents to establish your identity and to
provide the address proof. The documentation is bare minimum
and that may include a combination of ID proof (with picture) and
address proof. For the ID proof, one can furnish (any one) voter
ID, PAN card, Valid driver’s license, Passport or Voters registration
card and photo. The utility bill or the mobile phone bill or even the
bank or credit card statement may be provided as address proof.
Alternatively, Valid driver license with address or Government
issued Photo ID with address such as Aadhaar card or Passport
will suffice.
Before starting to add funds and invest abroad, you need to
be careful with the RBI rules on forex which is what Liberalised
Remittance Scheme (LRS) is all about. As an Indian resident, you
need to buy dollars ( or any other currency) using Indian rupees
(INR) from an authorised dealer (the bank) in India. The dollars
can then be spent abroad or remitted abroad for acquiring
property or other assets such as equity shares. So, a bit of paper-
work for you. You will require to complete the formalities related
to LRS form before starting to trade.
5. Forex Rates
While transferring rupee funds from your Indian bank account
to your brokerage account in the US, the foreign exchange rate
matters. To help you get a favorable exchange rate, some of the
international brokerage platforms where you open the account
have tie-ups with leading nationalized banks to get good low
forex rates for you. Alternatively, you can contact your banker for
transferring funds

3. Adding Funds
After your account is approved, you are allowed to add funds
from your domestic bank account to your brokerage account.

10
 RUPEE-DOLLAR VOLATILITY
THE IMPACT
Y our chances to profit from investing in stocks rise
incrementally if you buy foreign stocks. You, in fact, are in a
position to gain from two streams – From stock appreciation and
secondly, from the currency exchange rate. The reverse is also
true but the latter is not in individual investor’s control.
The cumulative return and repatriation of the funds back in India
are based on two factors. First, on the actual performance of
a particular foreign stock and secondly, on the appreciation or
depreciation of the underlying foreign currency of such a stock.
Sample this! You invest in a foreign stock and it falls over 1-3- or
5-year period. And, still, you are not at a loss even after selling it.
Yes, it's true and even the reverse may happen. Your foreign stock
price gains but you don’t end up in profits on selling it.
Welcome to the world of international investing where you are
not only up against the stock price but also the currencies.
There are several different scenarios and in each case, the reverse
can also happen.
If rupee weakens against dollar
If at the time of selling the stock A, the stock price has not
changed but the rupee has weakened by 10 per cent or so against
the dollar. While converting dollar back to INR, you stand to gain
even though the price of the stock is at the same at the time
of selling. Say, the rupee weakens to Rs 55, you stand to gain
even while the stock has not appreciated. If the stock price has
gained, you stand to gain from both – currency rate and stock
appreciation.
If rupee strengthens against dollar
If at the time of selling the stock A, the stock price has not
changed but the rupee has strengthened by 10 per cent or so
against the dollar. While converting dollar back to INR, you stand
to lose even though the price of the stock is the same at the time
of selling. Say, the rupee weakens to Rs 45, you stand to lose even
while the stock has not appreciated. If the stock price also gains
by an equal percentage, you are on the same ground.
If rupee-dollar exchange rate remains same
If at the time of selling, which could be within a year or after 3, 5
or 10 years, the exchange rate is the same, then it means there
is no currency risk on your transaction on selling the stock. Say,
the stock price has moved up by 25 per cent or fallen by an equal
margin, the currency risk is absorbed.
Here’s an example explaining the impact of rupee (INR)-dollar
(USD) exchange rate on your international investments:
Assuming investor A invests INR 100,000 in 2010 in the foreign
stock of B Company whose per stock price is USD 10, with the
exchange rate being USD 50. Therefore, A gets 200 shares of B
for his INR 100,000 investment. In 2021 he wants to exit when the
exchange rate is INR 75 and B’s share price is USD 12.5.
A’s return on B stock = 200 (No. of Shares) x USD 12.5 = USD 2500
(25% increase in value in terms of USD)
A’s repatriation to India in his bank account = USD 2500 X 75 (50%
appreciation of the rupee value because of the exchange rate
which was purchased at USD 50) = INR 187,500
Out of the profit of INR 87,500, INR 50,000 is the appreciation on
account of exchange rate fluctuation and the remaining is the
actual return of the stock.
Vice versa, the exchange rate going down may also significantly
impact the investor’s portfolio negatively. For example, when you
bought the stock from the US Stock exchange, the exchange rate
was USD 1$ = USD 70. After one year when you sold the US Stock,
the exchange rate was USD 1 = INR 64. Therefore, assuming the
stock has maintained the price at which it was bought, an investor
has already lost 8.8 per cent due to changes in the exchange rate.
There is a big trade-off in international investing. An ideal scenario
will be that your foreign stocks appreciate and INR depreciates
against the dollar. In that case, you gain on both the grounds and
it's a double bonus. To make the best use of such opportunities,
you need to start looking at international investing actively.
11
 OWNING FRACTIONAL SHARES

I
nvesting in the US stock market doesn’t require you to be rich. On the
contrary, the US stocks present a big opportunity to create wealth over
time, even with smaller amounts. If you are an investor looking to invest in
the US stocks for the first time or have limited capital, investing in some of
the top US stocks is still possible. In fact, you can even start with funds as
low as Rs 100. Welcome to the world of fractional shares!

This is possible as there are international brokerage firms that provide

access to own US shares as fractions. If a share listed on the US stock
exchange is trading at $500, you can still own half share by investing $250.
With thousands of companies listed across different US indexes such as
S&P 500, NYSE or Nasdaq, you can build a smart diversified portfolio even
with limited amount of funds. International brokerage houses provide easy
and simple access to global markets and help one diversify one's portfolio.

Unlike Indian stock exchanges, the price is not a barrier in the US stock
market. Simply decide how much you need to invest and the number of
shares will be automatically calculated for you. For example, if a share is
trading at $320 and you want to invest $100, then you will get 0.32 shares
of the company. Similarly, you can own shares of different companies
in fractions and build a diversified stock portfolio across sectors, market
capitalization even with a small amount of money.

12
 REGULATIONS & TAXATION RULES

5 FACTS ABOUT LIBERALISED REMITTANCE SCHEME (LRS)

FOR INDIAN INVESTORS

Whether you are considering to invest abroad, go on an international

vacation or even send your children for studies abroad, the RBI’s
Liberalised Remittance Scheme (LRS) will be the one-single stop for all
your concerns related to foreign exchange. As the name suggests, LRS is
all about the remittances (investing abroad) that a resident individual is
allowed to make. However, in addition to remittances, one can also avail
the foreign exchange facility (medical expense or while travelling) which
also comes under the purview of LRS.

Here are 5 key facts about the RBI’s Liberalised Remittance
Scheme.
1. LRS and international transactions
Before making an international transaction, one needs to convert
the Indian Rupee into Dollars for the purpose of investing or
spending abroad. The rules governing such transactions come
under the ambit of Liberalised Remittance Scheme (LRS). Simply
put, as an Indian resident, you need to buy dollars using the
Indian rupees (INR) from an authorised dealer (the bank) in India.
The dollars can then be spent or remitted abroad for acquiring
property or other assets such as equity shares. Here, the mention
of the dollar as a currency is for the representational purpose as
remittance can be in any freely convertible foreign currency other
than dollars.
2. LRS limits
Currently, under the LRS rules, any resident individual including
a minor (countersigned by a guardian) is allowed to remit up to
2.5 lakh US dollars (USD 2,50,000) in each financial year. At an
exchange rate of Rs 74 to a dollar, it is about Rs 1,85,00,000 or Rs
1.85 crore. There is no restriction on the frequency of transactions
in a year. Even if one brings the remitted amount back in the
same year, no further remittance will be allowed as the limit
pertains to each financial year. The rules clearly mention that
one can remit foreign exchange (forex ) only for any permissible
current account transactions or capital account transactions or a
combination of both.

13
 3. LRS – Current account transactions that country. It is not necessary for the investor to repatriate the
accrued interest or dividends on the deposits and investments
If you are going on an international trip with the family, the
made abroad.
foreign exchange facility will determine if it is allowed. In addition
to remittance, the availability of forex facility is there with resident
So, the dividend earned on your investments in stocks or interest
individuals for specific purposes. Some of them are as below:
earned from the investments held as bonds can be retained
• If you are making a private visit to any country except Nepal
abroad. Such earned income can then be used to re-invest or
and Bhutan. It could be an international vacation. You can
to meet any expenses abroad. Even the profits realised from
use your credit card on spends and ATM cash withdrawals if
investments in ETF’s and real estate can be redeployed abroad
the card allows international transactions.
without bringing it back to the domestic bank account.
• If you are traveling for business, or attending a conference or
specialised training abroad.
• If you need forex for meeting expenses for meeting medical Taxation of foreign stocks for individuals and ITR
expenses, or check-up abroad, or for accompanying as reporting
attendant to a patient going abroad for medical treatment/
The taxation of foreign shares considers factors such as the date
check-up.
of acquisition of shares, the purchase and sale prices as well
• If you need to meet expenses in connection with medical
as the period of holding of shares. This would help individuals
treatment abroad
understand the tax rates applicable on the income.
• If you need forex for meeting cost of education/studies
abroad.
Foreign shares held by an individual for more than 24 months
• If you wish to gift or make a donation abroad.
are treated as long-term capital assets and others are treated
• If you are going abroad for employment
as short-term capital assets. Capital gains from sale of long-
• If it is for the purpose of Emigration
term capital assets would be taxed at 20% with the indexation
benefit on purchase price or at 10% without such indexation
All of the above transactions will fall under current account
benefit. Indexation is applied to adjust for inflation over the
transactions and the Authorised Dealer (the bank) in addition
period of holding the asset. Capital gains from sale of short-term
may undertake the remittance without RBI’s permission if the
capital assets would be taxed at the slab rates applicable for the
transactions do not fall in the prohibited list. However, the person
individual.
remitting the funds has to bear the responsibility to comply with
the FEMA rules/regulations. One has to also comply with the
For individuals qualifying as a Resident and Ordinarily Resident
‘Know Your Customer’ guidelines and the Anti-Money Laundering
(ROR) in India, the income is taxable in India. However, in case of a
Rules while making any of the current account transactions.
Non-resident (NR) or Resident but Not Ordinarily Resident (RNOR),
income earned and received outside India is generally not taxable.
4. LRS – Capital account transactions
There are some reliefs provided under Indian tax laws in case
Some examples of the capital account transactions are:
capital gains are reinvested in prescribed schemes/assets. Overall,
taxation of capital gains is a wider concept and needs deeper
1. If you wish to invest abroad in shares, property etc, the LRS
analysis.
rules will define them as capital account transactions. Only
certain capital account transactions are allowed under LRS
In case of ESOP shares, the taxation happens at two stages: at
rules.
the time of allotment of shares and on sale of shares. Under
2. If you wish to open a bank account abroad i.e. a Foreign
the typical stages of ESOP i.e. grant, vest and exercise, taxation
Currency Account
triggers at the time of allotment of shares. The income is
3. If you wish to purchase real estate property overseas
determined based on the difference of the fair market value (FMV)
4. For making investments overseas which includes investing in
of shares on the date of allotment and the amount paid to acquire
shares, mutual funds, debt instruments, among others.
such shares. This income is treated as perquisite and taxed as
5. Setting up Wholly Owned Subsidiaries and Joint Ventures
part of salary income at the applicable slab rates.
outside India for business operations.

5. Repatriation of funds
If someone has invested across shares and mutual fund schemes
abroad, the LRS rules allow the investor (unless it is an overseas
direct investment) to retain and reinvest the income earned in
The second tax trigger for ESOP shares would be at the time
of sale of shares wherein the income would be the difference
between the sale proceeds and the cost of acquisition of shares
(i.e. FMV). The individual would need to pay tax on such capital
gain.

14
There are other key considerations in case of taxation of ESOP
shares:
• Tax residency of individual at the time of allotment of shares
• Tax residency of individual during the vesting period i.e.
grant to vest dates
• Cost of acquisition to be considered
• Challenges in claiming double-taxation relief/foreign tax
credit under a Tax Treaty owing to the differentiation in
nature of income from ESOP i.e. as employment income or
capital gain
Dividend income earned from foreign stocks is taxed under the
head ‘Income from Other Sources’. In case of certain ESOPs,
an individual may also receive dividend-equivalent income on
unvested shares. These are generally taxed as part of salary
income. However, it is advisable to have a thoughtful reading of
the features of ESOP to determine one’s taxation.
Some of the Tax Treaties may provide lower tax rates on capital
gains and dividend income. A careful study of the facts of each
case in view of the Tax Treaty could enable individuals to claim
the benefits under the relevant Tax Treaty.
Tax on salary income in case of ESOP shares is subject to tax
withholding by employer. For capital gain on foreign shares
(either acquired directly by individual or under an ESOP), the
tax needs to be discharged by the individual himself by way of
Advance Tax or Self-assessment Tax.
The Indian Income Tax Return (ITR) forms are revamped each
year to bring more simplification and transparency in terms
of reporting income and assets holding. In case of capital gain
income during FY 2019-20, the individual would need to file the
Form ITR-2 or ITR-3.
The reporting would be as below for foreign stocks:
• Schedule CG for Capital gain
• Schedule OS for Dividend income
• Schedule FSI and Schedule TR for claiming foreign tax credit
in case of double taxation relief
• Schedule FA: Details of holding of foreign shares/securities
Considering the nuances for foreign stocks, a clear insight of the
taxation laws is essential for individuals for taxation purposes.
Written BY
Pranay Bhatia, Partner and Leader – Tax & Regulatory Services
Deepashree Shetty, Director-Tax & Regulatory Services, BDO India
© Stockal
Understanding TCS on Foreign Remittance
In latest news for investors putting their money in global stock
markets, fresh amendments have been introduced to the Finance
Bill, 2020. A new provision, under the Liberalised Remittance
Scheme (LRS), will come into effect from 1st October 2020, and
it would levy a TCS (Tax Collected at Source) at the rate of 5%.
This would affect incoming fund transfers to your international
investment account and the rate would be levied on remittances
above Rs 7 lakh within a financial year.
In line with the latest amendment, all individuals remitting funds
via LRS will have to pay the tax collected at source for spends on
medical treatment, gifts, maintenance of relatives abroad, foreign
education, and investment in real estate, stocks and bonds.
They will, however, be able to adjust these spends against their
tax liability while filing income tax. Similar to tax deducted at
source (TDS), the tax paid under TCS can be claimed back fully
or partially as a refund while filing income tax return if the total
income is below the tax threshold limit for the year. It can also be
adjusted against an individual’s overall income tax liability.
After 1st October 2020, your authorized dealer (the bank
facilitating the foreign exchange) will collect a tax of 5% when
you transfer funds internationally under the LRS scheme on the
value of the fund transfer taking place in a financial year. For
the current financial year, any remittances from April 2020 will
count towards the 7 lakh threshold. However, your previous fund
transfers before October 2020 will not be affected.
Illustrations
1. TCS of 5% is deducted only on the amount above Rs 7 lakh.
For example, if you remit Rs 15 lakh in FY 2021, 5% will be
calculated on the amount exceeding the existing threshold
i.e. – Rs 8 lakh. Therefore, Rs 40,000 will be deducted as TCS.
2. Any remittance made in FY 2021 will count towards the Rs 7
lakh threshold. For example, if you have transferred Rs 5 lakh
before 1st October 2020 and you transfer additional Rs 10
lakh post that, then the 5% TCS will be calculated on Rs 8 lakh
( Rs 15 lakh minus Rs 7 lakh). 5% of 8 lakh which is Rs 40,000
will be deducted as TCS. However, no back-dated TCS will
need to be paid.
Note: This policy will be applicable only for Indian Resident
investors who fund their account via the Reserve Bank of India’s (RBI)
Liberalised Remittance Scheme.
© Stockal
15
 US MARKET- INSIGHTS

5 TOP US INDEXES TO TRACK FOR GLOBAL EXPOSURE

Home to some of the top blue-chip firms, the US stock market is the
largest platform for several global giants to raise capital. And, for
individual investors, there are a plethora of opportunities to gain from
the vibrant US stocks and its economy. From small-caps to large-cap
stocks and from home-grown companies in the US to companies based
out of Japan and China, among other countries, the US stock market is
buzzing with international money exchanging hands.

For investors to participate in the growth of some of the top companies

such as Facebook, Apple, Amazon, Netflix, Google, Microsoft, Starbucks,
Intel, the US market has several stock market indexes in place. For
starters, keeping an eye on and tracking the leading 5 US indexes for
cashing on the opportunities is important.

Here are top five US indexes to be glued to if you want to track the US
markets.

16

1. Dow 30
Dow Jones Industrial Average (DJI) or the Dow 30 is one of the go-
to indexes. The index consists of top 30 blue-chip companies but
unlike some of the leading indices, Dow 30 represents companies
that are only based in the US.
Dow 30 index is part of the S&P Dow Jones Indices and has a
diversified exposure to various sectors of the economy except
for transportation and utilities. The Dow Jones Transportation
Average index and the Dow Jones Utility Average index cover
them and all three of them make up the Dow Jones Composite
Average index.
Some of the prominent companies in the 30-stocks index are
Boeing, Nike, Goldman Sachs, Walmart, Intel, 3M, UnitedHealth
Group, Apple, Coca-Cola, McDonalds, Microsoft etc.
2. Nasdaq-100 Index (NDX)
The Nasdaq-100 since its inception in 1985 is a large-cap growth
index and includes 100 of the largest domestic and international
non-financial companies listed on the Nasdaq Stock Market based
on market capitalization. Some of the world’s most innovative
companies like including Apple, Microsoft, Starbucks, Google,
Intel, and Tesla are listed on Nasdaq-100.
With more than 7,000 products linked to this index, the
Nasdaq-100 provides investors access to some of the world’s
leading companies and across investment products such as ETFs,
Annuities, Options and Futures.
3. Nasdaq Composite Index
The Nasdaq Composite Index or Nasdaq covers more than 2,500
stocks, more than most other stock market indexes. Because it is
so broad-based, the Composite, since its inception in 1971, is one
of the most widely followed and quoted major market indexes.
The securities that can be traded on Nasdaq index include
common stocks, ordinary shares, ADRs, shares of beneficial
interest or limited partnership interests and tracking stocks.
Some of the stocks that are listed on Nasdaq include Apple,
Microsoft, Amazon, Facebook, Alphabet etc. There are about 390
technology firms occupying about 49.67 pr cent of the index,
while the Consumer Services with 292 companies has a weight of
about 19.56 per cent in the index.
4. S&P 500 index
S&P 500 is one of the many S&P Dow Jones Indices and is
considered to be the top-most single indicator of large-cap US
stocks. S&P 500 Index, the first US market-cap-weighted stock
market index, was created way back in 1957 and remains one of
the oldest indexes with over a 70-year live track record.
S&P 500 Index includes nearly 500 leading corporates across
about 11 sectors and covers about 80 per cent of the market
capitalisation of US stock exchanges.
The top three sectors in the S&P 500 are Information Technology,
Health Care and Communication Services, totalling about 50 per
cent of the index.
5. RUSSEL 2000 index
If you are looking to make some big bucks from the gains in the
small-cap companies, the Russell 2000 Index is for you. It is an
indicator of the performance of the small-cap segment of the US
stock market universe.
Based on a combination of their market cap and current index
membership, the Russell 2000 Index has nearly 2000 of the
smallest companies listed on the platform. The Russell 2000 Index
is actually a subset of the Russell 3000 Index and represents
nearly 10 per cent of the total market capitalization of that index.
The Russell 2000 is reconstituted annually to ensure larger stocks
do not distort the performance and characteristics of the true
small-cap nature of the index.
TOP 5 AMAZING FACTS ABOUT S&P 500 INDEX
S&P 500 is one of the many S&P Dow Jones Indices and is
considered to be the top-most single indicator of large-cap US
stocks. S&P 500 Index, the first US market-cap-weighted stock
market index, was created way back in 1957 and remains one of
the oldest indexes with over 70-year live track record.
Here, we look at some of the top interesting facts about the index.
1. Top index to track
S&P 500 Index includes nearly 500 leading corporates across
about 11 sectors and covers about 80 per cent of the market
capitalisation of the US stock exchanges. Nearly $10 trillion of
money is indexed or benchmarked to the index. Of this about
$3.4 trillion comprises indexed assets itself. This makes S&P 500
Index the most widely-traded index in the world.
2. World exposure
The top 4 passive funds by AUM worldwide track the S&P 500
Index. In 2018, more than 40 per cent of the sales of S&P 500
constituents were reported from foreign countries. The S&P
500 Index has the large-cap companies as constituents and is
considered to have a very low correlation with the Indian equity
market. Combining assets that are less or not correlated help
17
 reduce portfolio volatility, thereby improving risk-adjusted • Microsoft Corp – Information Technology
returns • Apple Inc. – Information Technology
• Amazon.com Inc – Consumer Discretionary
• Facebook Inc A – Communication Services
3. Sector breakdown
• Alphabet Inc A – Communication Services
The top three sectors in the S&P 500 are Information Technology, • Alphabet Inc C – Communication Services
Health Care and Communication Services, totaling about 50 per • Johnson & Johnson – Health Care
cent of the index. The breakdown of various sectors is as follows: • Berkshire Hathaway – Financials
• Visa Inc A Information – Technology
• Information Technology – 25.7% • JP Morgan Chase & Co – Financials
• Health Care – 15.4%
• Communication Services – 10.8%
5. S&P 500 Vs Nasdaq
• Financials – 10.6%
• Consumer Discretionary – 10.5% While Nasdaq is an Information Technology heavy index, the S&P
• Industrials – 7.9% 500 Index is a much broad-based index. There are 100 stocks
• Consumer Staples – 7.4% listed on Nasdaq while on S&P 500 Index, there are 500 stocks,
• Utilities – 3.3% thus giving a much diversified flavour to those who want to
• Energy – 3% diversify their international portfolio. Further, there are large and
• Real Estate – 2.9% mid-cap stocks listed on Nasdaq while S&P 500 Index has only
• Materials – 2.5% large-cap stocks.

4. Top 10 Constituents By Index Weight

If you want to own the prime stocks of the S&P 500 index, the
top three stocks are Microsoft, Apple and Amazon by index
weightage. The top stocks are as follows:

18
 SPDR S&P 500 ETF
THINGS TO KNOW BEFORE INVESTING

I nvesting in stocks has often been a catch-22 situation for many

investors. Whether to buy Stock A or Stock B or both? And, if you are
investing in the US stock market, it becomes all the more tempting to
buy the blue-eyed stocks – from Facebook to Apple, and from Amazon
to Netflix.

What if you are given an opportunity to invest in all of them in one

single-go and through a single investment? After all, you need to be
invested in all of the growth stocks that hold the potential to generate a
chunky return over the next few years, if not decades.

And, what a better way to hold a bouquet of prized stocks through an

exchange-traded fund (ETF)? An ETF, typically, tracks one specific index
and, thus, investing in it means you end up buying all the stocks of the
index in the same proportion as held in the index. What’s more, in an
ETF you get the live prices as trading happens all through the market
hours and the cost of owning them is considerably low.

The SPDR S&P 500 ETF is one such ETF that tracks the S&P 500 index –
an index of a diversified group of large-cap US companies across eleven
major industries.

19
 HERE ARE FOUR KEY HIGHLIGHTS OF THE SPDR
S&P 500 ETF
1. Know about SPDR ETF
SPDR S&P 500 ETF, also known as SPY in the market circles, was
launched in January 1993 and is the very first exchange-traded
fund listed in the United States. SPDR S&P 500 ETF tracks the S&P
500 Index that consists of a portfolio representing all 500 stocks in
the S&P 500 Index.
2. Features
The ETF pre-dominantly holds large-cap US stocks. As on July
07, 2020, the total assets of the SPDR S&P 500 ETF were about
$278,946.125 million. The ETF has a management fee of 0.09 per
cent and expense ratio of 0.095 per cent.
3. Major holdings
The top three sectors in the S&P 500 are Information Technology,
Health Care and Communication Services, totalling about 50 per
cent of the index. The three prime stocks of the S&P 500 index are
Microsoft, Apple and Amazon by index weightage while Facebook,
Berkshire Hathaway, Visa are some other constituents. When you
invest in the SPDR S&P 500 ETF, you get the opportunity to gain
from the potential of all these winner stocks.
4. How to invest
SPDR S&P 500 ETF is traded on major US Stock Exchanges and it’s
easy to trade in them. Similar to buying equity shares, you can
buy SPY ETF through a brokerage account registered in the US.
And once invested, you can also employ traditional stock trading
techniques such as stop orders, limit orders, margin purchases,
and short sales using ETFs. It is very simple and easy for investors
to invest in ETFs. So, what’s stopping you to open a US brokerage
account and reap the benefits of investing in global markets?
20
5 FACTS TO KNOW ABOUT DOW JONES INDUSTRIAL
AVERAGE INDEX (DOW 30 )
What a journey it has been for Dow 30 – the second oldest US
index that completed 124 years of its existence in May 2020. From
the Base Value of 40.94, since its inception on 26 May 1896, the
Dow 30 index is now over 64,000 per cent in absolute terms!
If you as an investor are looking to maximise the benefit from the
potential of US economy, Dow Jones Industrial Average (DJI) or
the Dow 30 is the go-to index. The index consists of top 30 blue-
chip companies but unlike some of the leading indices, Dow 30
represents companies that are only based in the US.
Therefore, in a way, Dow 30 is a barometer of the US economy,
its businesses and the consumption trends in the country. For
someone to diversify across economies, Dow is a great way to
benefit from the growing opportunities in the US markets.
Amongst all other US indices, the Dow 30 remains a popular
measure of stock market movement and perhaps one of the few
indices which has witnessed the ups and downs over several
decades. If you wish to start tracking its performance or any of its
components, the Dow 30 Ticker symbol is INDU and on Reuters it
is .DJI while on the Bloomberg terminal it is DJI.
Wide exposure
Dow 30 index is a part of S&P Dow Jones Indices and has a
diversified exposure to various sectors of the economy except
transportation and utilities. The Dow Jones Transportation
Average index and the Dow Jones Utility Average index cover
them and all three of them make up the Dow Jones Composite
Average index. Some of the prominent companies in the 30-stocks
index are Boeing, Nike, Goldman Sachs, Walmart, Intel, 3M,
UnitedHealth Group, Apple, Coca-Cola, McDonalds, Microsoft etc.
How is it different from other indices
The way the Dow 30 index is structured is different from other
leading indices. The Dow is a price-weighted index that measures
the performance of 30 of the largest US companies. Unlike other
indices, in Dow 30, the selection is not governed by quantitative
rules but as per the S&P indices website, “a stock is added to
the index only if the company has an excellent reputation,
demonstrates sustained growth and is of interest to a large
number of investors.” Further, it is to be maintained that the
companies are incorporated and headquartered in the US with
the large part of revenues being generated from the US.
DISCLAIMER
 DISCLAIMER

This book is designed to provide helpful general information on the subject

discussed. It does not offer information as financial, accounting, investing, legal
and/or other professional services or advice. While best efforts have been used in
preparing this book, the author, publisher or website make no representations or
warranties of any kind and assume no liabilities of any kind with respect to the
accuracy or completeness of the contents and specifically disclaim any implied
warranties of merchantability or fitness of use for a particular purpose. The
author, the publisher or website shall not be held liable or responsible to any
person or entity with respect to any loss or incidental or consequential damages
caused, or alleged to have been caused, directly or indirectly, by the information
or content contained herein. No warranty may be created or extended by any
sales representatives or written sales materials or advertising or promotion. Every
individual is different and the advice and strategies contained herein may not be
suitable for every situation. The reader should seek the services of a competent
professional before beginning any financial transaction or investment.

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