Investing in Nasdaq from India – Why and How

The NASDAQ stock exchange, headquartered in New York City, is the second largest stock exchange in the world after the New York Stock Exchange.

With a market capitalization of over $13 trillion, Nasdaq is home to over 3,000 listed companies, mainly in sectors like technology, telecom, healthcare and other growth industries.

Some of the most well-known global technology giants are listed on the Nasdaq exchange, including Apple, Microsoft, Amazon, Facebook, Google, Netflix and Tesla amongst many others.

For Indian investors looking to diversify their portfolios beyond the domestic market, Nasdaq offers an appealing opportunity.

The innovative companies listed on Nasdaq have significantly outperformed benchmarks like Sensex and Nifty over the past decade.

Investing in these disruptive businesses can give investors exposure to continued high growth.

In addition, Nasdaq provides exposure to a different regulatory environment and currency.

Overall, the growth prospects, brand equity and global scale of companies listed on the exchange make it attractive for Indian investors to allocate a portion of their portfolios to Nasdaq stocks.

Ways to Invest in Nasdaq from India

Indian investors have two main routes to gain exposure to Nasdaq stocks – direct investment and indirect investment.

Direct Investment

This involves directly investing in shares of companies listed on the Nasdaq stock exchange by opening a trading account with a broker.

Opening Trading Account with Foreign Broker

One option is to open an account directly with an international brokerage firm like Interactive Brokers or Saxo Capital that provides access to US stock markets.

The account opening process, KYC requirements, and funding process is quite straightforward.

These brokers offer trading platforms and apps to easily search, analyse and invest in Nasdaq listed stocks.

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Opening Trading Account with Indian Broker Partnered with Foreign Broker

Many leading Indian brokerages like ICICI Direct, HDFC Sec, Motilal Oswal also offer the ability to invest in US stocks by partnering with international brokers.

For example, ICICI Direct partners with J.P.Morgan for international trading access.

The trading account can be opened online or offline through the Indian brokerage’s platforms.

The international broker provides the back-end infrastructure for order routing and trade execution on Nasdaq.

Benefits of Direct Investment

Wider range of stocks to choose from for investment compared to indirect routes

Real-time trade execution and price quotes

Flexibility to build a customized portfolio of stocks

Ownership of actual stocks provides full upside potential

Challenges of Direct Investment

High opening account costs with some brokers

Additional brokerage charges for every transaction

Forex conversion required from INR to USD adds costs

Need to track multiple tax systems & declarations

Indirect Investment

The other approach to gain Nasdaq exposure is via mutual funds and ETFs. These provide the benefit of professional management and simplification compared to direct stock investing.

Investing in Mutual Funds Focused on Nasdaq Companies

There are mutual funds exclusively focused on investing in companies listed on the Nasdaq exchange. For example, Motilal Oswal Nasdaq 100 Fund of Fund invests in the shares of Nasdaq 100 companies through an underlying US-based fund.

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Investing in ETFs Tracking Nasdaq Indices

ETFs like Invesco QQQ Trust track the Nasdaq 100 Index comprising 100 largest non-financial stocks on the exchange. Investing in this ETF automatically provides exposure to top companies.

Investing in Indian Funds/ETFs

Fund houses like Nippon Life, Motilal Oswal and ICICI Prudential also offer ETFs and index funds in India that aim to mirror the performance of Nasdaq indices.

Pros of Indirect Investment

Easy way to gain exposure through a single fund investment

Lower investment amounts compared to direct stocks

Professionally managed with periodic rebalancing

Simpler tax reporting compared to individual stocks

Cons of Indirect Investment

Have no control over specific stocks held

Higher expense ratios than direct investment

Lack of real-time trading as buying and selling is through the fund

Potential for tracking error vs actual Nasdaq performance

In summary, both direct and indirect routes offer avenues for Indian investors to allocate capital towards Nasdaq stocks as part of their portfolio diversification strategy. 

Each approach has its own pros and cons that must be evaluated based on an individual’s investment goals, time horizon and risk tolerance.

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Key Factors to Consider When Investing in Nasdaq from India

There are several important factors Indian investors should evaluate when assessing investment opportunities in Nasdaq stocks:

Regulations around Investing Abroad

As an Indian resident, an investor can remit up to $250,000 per year under the Liberalised Remittance Scheme (LRS) released by the RBI for overseas investments. This limit includes both investment capital and associated transaction costs. Foreign exchange dealings need to be conducted through an authorised dealer bank.

Understanding Nasdaq Companies and Indices

The Nasdaq exchange has over 3,000 listed companies, but is heavily weighted towards technology, healthcare, telecom and other growth sectors. Key indices like the Nasdaq 100 comprise the largest non-financial companies. Investors should develop a strong understanding of the major companies, sectors and weightings.

Costs

There are costs associated with Nasdaq trading accounts, transactions, and currency conversions that can reduce net returns:

Account opening and maintenance costs

Brokerage commissions on trades

Currency conversion spreads on every INR-USD fund transfer

Custodian and depository fees

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Taxation

While taxes in the US on capital gains and dividends may be lower, as an Indian tax resident, investors need to pay applicable taxes in India:

Short term capital gains on stocks held for under 1 year are taxed at 15%

Long term capital gains on stocks held for over 1 year are taxed at 10%

Dividend income from US stocks is taxed at applicable slab rates

Risk Management

Nasdaq companies especially in the technology sector tend to be more volatile compared to broader market indices. Investors need to be aware of downside risks and manage risk through prudent diversification.

In summary, while investing in Nasdaq offers exciting opportunities, careful evaluation of all costs, tax liabilities and risks is required. Thorough research and advisory from investment experts is highly recommended.

Step-by-Step Guide to Invest in Nasdaq from India

For investors looking to purchase stocks listed on the Nasdaq exchange, here is a step-by-step process:

Selecting a Broker

Research and shortlist brokers that provide access to Nasdaq listed US stocks for Indian residents. Analyse account opening costs, brokerage charges, trading platforms and overall investor reviews.

Opening a Trading Account

Fill out the account opening form either online or in-person along with submitting your KYC documents including PAN card, address proof and bank account info. Sign any additional declarations required for overseas trading.

Funding your Trading Account

Initiate a fund transfer from your Indian bank account to the trading account per LRS guidelines. Brokerages tie up with banks to facilitate smooth forex conversion and wire transfers.

Placing Orders

Once your trading account is funded, you can start placing buy orders for shares of companies listed on the Nasdaq stock exchange based on your investment strategy.

Monitoring Investments

Regularly monitor the performance of your Nasdaq portfolio. Re-evaluate your holdings based on company results, market conditions and investment goals.

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Tax Reporting

Work with a CA to appropriately report capital gains, dividends or other income from your Nasdaq investments while filing India tax returns.

Additionally, investors should also understand US tax requirements applicable to non-resident shareholders for aspects like estate tax, withholding tax etc.

In summary, with the right brokerage, thorough research and careful tracking, Indian investors can incorporate Nasdaq listed stocks as part of their broader investment portfolio.

Conclusion

There are two primary routes for Indian investors to gain exposure to Nasdaq listed stocks – direct investing through trading accounts with brokers, and indirect investment via mutual funds and ETFs.

Nasdaq provides exposure to innovative high-growth companies like Apple, Microsoft, Google, Amazon and Facebook that have been consistently outperforming the overall market.

Allocating a portion of your portfolio to Nasdaq stocks can aid in diversification and improved return potential.

However, investing in Nasdaq also carries significant risks arising from volatility of growth stocks, foreign exchange fluctuations, taxation policies and regulatory requirements.

Doing thorough research across costs, tax liabilities, and risks analysis is very important.

Most investors should aim to allocate not more than 10-15% of their overall portfolio towards Nasdaq stocks or funds as part of a prudent diversification strategy.

This provides participation in potential upside while also managing risk.

As with any Investment, discipline and long-term thinking is required rather than getting swayed by short-term trends and volatility.

For Indian investors, the long-term innovation and growth prospects of companies listed on the Nasdaq exchange continue to make it an appealing investment destination.

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