Looking to invest in US stocks? First understand their cost structure

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Not long ago you had to fix an appointment with your broker and fill lengthy forms to open a Demat account. We have come a long way since then. With the growth of fintech companies, several online platforms now offer the facility to open Demat accounts in a seamless manner. You can now even invest in US stocks in a similar manner.

According to a report by Winvesta, a fintech platform for global investing, Indians prefer investing in US stocks directly instead of equity funds. The report also noted that new trends in global investing are around the genres of electric vehicles, blockchain and other emerging technologies.

“We have seen a growing interest among Indians to invest in the US markets. International markets give an opportunity to investors to diversify their portfolio for better returns. The FAANG+M (Facebook, Apple, Amazon, Netflix, Google, and Microsoft) stocks are very popular in India, too. Interestingly, we have seen Tesla as one of the most popular stocks with investors showing their keen interest to buy the stock,” said Viram Shah, co-founder and CEO, Vested Finance, a US Securities and Exchange Commission Registered Investment Adviser.

But even if you are tempted to invest in the international markets, you need to first understand the costing part. A back of the envelope calculation shows that an investment of Rs 10,000 will cost approximately Rs 1,300. So one should make 13% profit at least to cover the cost of investing abroad. But this cost stays almost the same even if one invests a higher amount, thus reducing the profit margin required to break-even. So when investing abroad, a higher investment will entail a lower expense ratio.

Here are the details of the cost of investing abroad:

Remittance expenses: The entire amount does not get invested in the US market. This is because there is a fee called remittance expenses. These are flat charges that usually vary from Rs 250 – Rs 1,000 per transaction across banks. Over and above this, banks usually have a mark-up on the exchange rate when remitting or receiving currency. The markup charges differ from bank to bank.

Repatriation Cost: At the time of withdrawal again you will be charged and the cost generally varies between $10 and $35 per transaction. It is advisable that you do not withdraw small amounts but withdraw in one go considering charges are levied based on per transaction. A repatriation cost or a fixed wire transfer fee once an investor decides to liquidate the investment and seek the proceeds back.

Brokerage expenses: There are brokerage expenses just like buying and selling of Indian shares. Most of the platforms are currently not charging any broking fees but before investing do ask as the cost can vary from broker to broker. “As a broker, we have a zero commission plus structure. You get 3 free transactions per month, after which we charge a flat fee of one dollar. In the first month, we give 10 free transactions so that you can build up your portfolio,” said Swastik Nigam, founder & CEO, Winvesta.

Underlying cost: If you are investing in Exchange Traded Funds or ETFs there will be an underlying expense ratio that is charged by mutual fund houses for managing the fund.

Account opening fees: Though most platforms have waived off account opening fees for setting up the account, always ask before going for one.