Investing In US Stocks From India? Five Risks You Should Know

The alleged Rs 100-crore trading fraud involving Bengaluru-based fintech platform Stockal Securities has brought the risks of investing in overseas equities through digital platforms into sharp focus.

Nearly 30 Indian investors have alleged that their US stock holdings, including shares of Apple, Nvidia, Amazon and Tesla, were liquidated without their authorisation, with the proceeds used to purchase shares of a thinly traded Chinese company, Zhibao Technology Inc.

The incident, which is under investigation, has raised questions about account security, trade execution, custody of overseas securities and the recourse available to Indian investors when things go wrong.

Investing in US equities offers Indian investors access to global businesses, technology companies and sectors that may have limited representation in domestic markets.

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However, buying shares listed overseas also comes with a different set of risks, many of which investors may overlook while signing up on an investment platform.

Here are five risks investors should understand before putting money into US stocks.

1. Platform And Cybersecurity Risks

An investment account is only as secure as the systems and processes protecting it. Phishing, compromised email accounts, stolen login credentials and weak authentication mechanisms can expose investors to unauthorised transactions.

The Stockal episode has highlighted why investors should check whether platforms offer multi-factor authentication, real-time trade alerts, login notifications and mechanisms to flag or restrict suspicious transactions. Most importantly, investors should understand who is responsible for account security and how quickly unauthorised trades can be reported and addressed.

2. Custody And Counterparty Risks

Unlike domestic equity investments, overseas stock transactions may involve multiple entities, including an Indian-facing investment platform, an overseas broker, a clearing firm and a custodian.

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Investors should establish which entity actually holds their securities, whose name the assets are registered under and what happens if the platform or its overseas partner faces financial or operational difficulties. A familiar Indian brand or app does not necessarily mean the underlying securities are held in India or under the same regulatory framework as domestic shares.

3. Currency and Exchange-rate Risk

The returns from US stocks are not determined by share-price movements alone. The Rupee-Dollar exchange rate also plays a role in the final returns earned by Indian investors.

For instance, an appreciation in the rupee against the dollar can reduce the rupee value of an investment even if the underlying US stock remains unchanged. Conversely, rupee depreciation can boost returns when investments are converted back into Indian currency.

Investors must also account for currency conversion charges and remittance costs. The US Securities and Exchange Commission (SEC) identifies exchange-rate fluctuations as a key risk associated with international investing.

4. Market Volatility And Liquidity Risks

Investing in well-known US companies does not eliminate market risk. Overseas equities remain exposed to sharp price movements driven by interest rates, corporate earnings, geopolitical developments and economic data.

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The risk can be considerably higher in smaller companies and thinly traded stocks, where limited trading volumes can make it difficult to exit positions at the desired price. The Stockal incident, where investors alleged that proceeds from unauthorised sales were used to purchase shares of a relatively obscure Chinese company, illustrates the potential consequences of exposure to illiquid securities.

5. Regulatory And Tax Compliance Risks

Overseas investments made by Indian residents fall under the Reserve Bank of India's Liberalised Remittance Scheme (LRS). The RBI currently allows resident individuals to remit up to $250,000 per financial year for permitted transactions, including overseas investments.

Investors must also understand their Indian tax obligations. Resident taxpayers are required to disclose applicable foreign assets and income in Schedule FA of their income tax returns. The Income Tax Department specifies disclosure requirements for foreign equity interests, depository accounts and custodian accounts.

What Investors Should Check

Before opening an overseas trading account, investors should verify the platform's regulatory credentials, identify the overseas broker and custodian, understand the applicable investor-protection framework and check the process for reporting unauthorised transactions.

For instance, US Securities Investor Protection Corporation (SIPC) protection applies only to eligible assets held with member brokerage firms, covers certain losses arising from broker failure and does not protect against market losses.

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