Rap the app & knock on Nasdaq's door

Hold your US midterm thoughts a bit longer. Instead, gaze upon the US stock market - online investment platforms are opening it up for Indian retail investors. Big Tech holds a special interest for Indian investors as the AI infra build-up concentrates investment interest. Apps like Groww and Zerodha are making it easier for small investors to get into the game.

Overseas equity investments were, of course, possible earlier, but were restricted to HNIs through foreign banks and wealth management firms. Lowering the ticket size could increase outbound equity investment for those seeking higher returns than what they can expect here at home. Underperforming domestic markets and pressure on the rupee make US stocks lucrative. But the diversification strategy has to factor in the friction of taxes, currency conversion and compliance burden. Transferring funds, currency exchange, brokerage and forex fees, and withdrawal charges eat into returns of small and frequent trades. Capital gains are taxed in India depending on the holding period, while the US imposes a withholding tax on dividends for retail investors. Since investments are routed through RBI's liberalised remittance scheme, tax collection at source applies above a transfer threshold in a financial year. TCS and the US withholding tax on dividends can be adjusted against I-T liability. But both involve additional paperwork. Tax filing becomes more involved with disclosure of all foreign assets, including unsold stocks held overseas. Reporting requirements are stringent with heavy penalties involved.

Other means exist to gain exposure to foreign equity, like through MFs that don't raise the compliance burden and trading friction for retail investors. This route has a potential downside in that it can layer fees of the domestic MF, as well as those of their international partners. But it doesn't run into tax complications. Direct investment is a la carte, and appeals to a certain type of investor who'd prefer to retain control over decisions, while the big boys 'go Nasdaq'.