- Viram Shah, CEO of Vested Finance, shares what has kept most Indians away from US investing and answers the whys and hows of investing in international markets.
- In 2020, Vested Finance completed $100 million in trade.
- The three-year old startup recently raised $3.6 million in a seed funding round.
For the Mumbai-born Viram Shah, who was pursuing his master’s in business administration in the US, it was frustrating that even though Indians use most of the products from big US-based companies, they weren’t really investing in them.
The former JP Morgan investment analyst then partnered with his friend Darwin Arifin to start Vested Finance — an online investment platform which allows Indian investors to invest in the US stock market.
In 2020, Vested Finance crossed $100 million in trade. The three-year old startup recently raised $3.6 million in a seed funding round from Moving Capital, Ovo Fund and TenOneTen Ventures in the U.S., and Inflection Point Ventures and Venture Catalysts in India.
In a conversation with Business Insider, Shah shares what has kept most Indians away from US investing and answers the whys and hows of investing in international markets.
Is it even legal to invest?
Shah shares that when they started Vested Finance in 2018, the most common question he had to answer was whether it is legal to invest in US stocks from India. This was then followed by questions like how does one get to do it and what the investment opportunities are.
The answer is — Indians can start investing in the US stock market by opening an overseas account with an Indian brokerage, open an account with foreign brokerage or invest through Mutual Funds with global equities.
Vested has partnered with US stock brokerage firm DriveWealth and has partnered with 25 firms in India across brokers, bank brokers, fintech cos and distributors as well. “We started off with a Business to Consumer (B2C) format and started onboarding customers who wanted to invest internationally. Over time, a lot of existing financial institutions reached out to us saying we want to offer US investments to our clients but we don’t want to go through the entire hassle of partnering with US platforms etc.,” Shah told Business Insider.
It currently counts Axis Securities, Kuvera, Angel Broking and 5Paisa among others as its clients.
Lack of awareness is the biggest competition
Yet, Shah believes that the current biggest competition is not from fellow companies but from the fact that there is not much awareness about international investing. “The space overall is still evolving, a lot of things still need to be streamlined in the customer journey,” he said.
But the potential is huge. India has seen a huge uptick in the number of people investing in Indian stock market.
Nithin Kamath, founder of Zerodha, had recently taken to Twitter to share the number of new Demat accounts added in 2020 is a clear indication of the increased interest in investing. December 2020 was the fifth month in a row where India saw one million Demat accounts being added per month.
Here’s the yearly Demat addition for the last 20yrs. Stockbroking is as high beta as it can get. When someone asks… https://t.co/ROnzodOxEI
— Nithin Kamath (@Nithin0dha) 1613734086000
And Shah believes that in an ideal scenario, every Indian retail investor should diversify their portfolio to include 15-20% investment internationally.
Taxes and high withdrawal fees are keeping customers away
Currently, the Reserve Bank of India allows an Indian to invest only up to $250,000 (₹2 crore) overseas per year without having to apply for special permissions.
But here is what you need to remember while investing in an US stock — the profits will be subject to currency exchange rates and some brokerages may charge high commissions.
Shah believes that withdrawal fee continues to be a big hiccup for US stock investing, but there has been a lot of improvement in the sector. “The withdrawal fee used to be $35 per transaction and now it’s $11. We expect it to come down further as things get more streamlined,” he said.
Vested Finance, like most other stock broking platforms, does not charge any commission. So one wonders, how do they make money? “We have an upfront account opening fee of ₹399, we have a premium plan as well, which provides value add services, reduces the withdrawal fee, among other things. Over time, we expect a lot of different opportunities to open up as we hopefully will get a broking license in the future,” he said.
What are the ‘safe stocks’ to bet on?
While for Indians, the likes of Tesla, Facebook and Apple have been favourite US stocks, according to Shah pandemic-driven stocks like Pfizer, Zoom and Netflix have also been a hit in 2020.
But for beginners to the US stock market, Shah advises to invest in exchange-traded funds (ETFs). An exchange-traded fund, which is quite similar to a mutual fund, is an investment fund which trades with securities, bonds and stocks. “The best way to go about it is pick an index ETF, a technology ETF and balance it out with a debt fund and some gold investments. That’s a very simple strategy. There are also pre-determined allocations called Vests which we offer, which is popular among first time investors,” he said.