Recent security incidents involving unauthorized asset liquidation have put a spotlight on the safety of US stock investing via Indian fintech platforms. Investors face risks ranging from cybersecurity threats to complex account structures, such as omnibus holdings, which can complicate asset recovery. Understanding the distinction between direct custody and intermediary-managed accounts is essential for protecting capital in these offshore investments.
The recent reports of unauthorized trading and asset liquidation on platforms like Stockal (now known as Borderless) have raised alarms among Indian investors regarding the safety of buying US stocks through local fintech apps. While these platforms have made it incredibly easy to purchase shares of global companies like Apple or Nvidia, the ease of use often masks a complex financial chain of command that operates in the background.
At the core of the concern is the structure of the brokerage account itself. Many Indian platforms do not directly hold an investor's shares. Instead, they act as an intermediary, routing orders to US-based broker-dealers. A significant risk involves the use of omnibus accounts, where an intermediary groups the holdings of many different customers together under one master account. If an intermediary faces financial trouble or shuts down operations, separating individual holdings from this pool can become a long and difficult legal process for the investor.
Cybersecurity remains another critical area of concern. The recent security incident involving the unauthorized sale of blue-chip stocks to purchase obscure penny stocks highlights the danger of account takeovers. When an attacker gains access to a user's account using valid credentials, they can liquidate assets and withdraw funds before the investor realizes what has happened. Security experts note that standard login methods are often insufficient. Investors are urged to enable mandatory two-factor authentication (2FA) that uses time-based codes rather than just simple passwords, and to monitor their account activity for any suspicious transactions.
There is also a regulatory distinction that investors should understand. The Indian entity that provides the app is often just the technology partner, while the actual custody of the shares lies with a foreign broker. This can make it difficult for Indian regulators to intervene directly if something goes wrong. To address this, the International Financial Services Centres Authority (IFSCA) has introduced a framework allowing brokers to operate through GIFT City. Platforms registered under this framework offer a more direct regulatory link within India, which is an alternative to the traditional, more opaque offshore broker arrangements. Investors are advised to check if their chosen platform is registered with the IFSCA.
Beyond technical and structural risks, investing in US markets involves inherent financial complexities. Indian residents are subject to the Liberalised Remittance Scheme (LRS), which caps the amount they can send abroad annually. Furthermore, the tax implications are significant; foreign equity investments do not qualify for the simpler income tax forms used by most retail investors, requiring more detailed reporting. Additionally, because the investments are in US Dollars, the performance of an investor's portfolio is tied to currency fluctuations. Even if a US stock price remains stable, a strengthening Indian Rupee can effectively reduce the value of the investment for the Indian holder.
As the next step, investors may want to request direct account statements from the US custodian, independent of the Indian app's interface. Confirming who actually holds the shares and verifying the security protocols—such as whether the platform allows withdrawal of funds directly to a bank account—can help provide a clearer picture of the safety measures in place.