Before we proceed with obtaining knowledge about the process by which you can invest in the US stock market from India, we should first learn what it entails. Now, when we think of diversifying our investment portfolios, we generally consider expanding our investment approach across various sectors, markets, and industries. So, to help you decide where to invest and how to branch out your investment portfolios, you need to know about the various market capitalizations, the PE ratio used by analysts and investors to establish the value of the shares of the company, among other things that will prove informative before you make your decision.
Now, even when investors choose to diversify stock investments across other markets and sectors, it is highly unlikely for them to look beyond India’s boundaries for investment options. For instance, the US stock market holds some of the finest stocks in the world such as Google, Facebook, etc. Investing in these stocks opens up growth opportunities for you by partaking in their achievements and also expanding your horizons beyond the Indian stock market.
Another question that investors should know the answer to before they choose to expand their investment portfolios is, ‘what is a Demat account?’. Investors should be aware of this facility that provides them with the option of holding their shares and collaterals in the electronic format. We will proceed to learn more about these things in the following article.
How to invest in US stock markets from India?
Essentially, there are two ways that you can opt for if you decide to invest in the US stock market. The two ways are as follows:
Let’s find out how:
- Direct Investment
The way of making direct investments in the US stock market is a common and hassle-free method. You can proceed with the direct investment method in two ways, either by creating an overseas trading account with the help of a domestic broker or you can choose to do so with the help of a foreign broker.
a) Domestic broker- you can open an overseas trading account with the help of a domestic broker. There are many domestic brokers in India who are associated with stockbrokers in the US. To open a trading account with such a broker, you will be required to submit some necessary documents. However, you should also keep in mind that this system of investment comes with certain limitations. These restrictions depend and vary from one brokerage firm to another.
b) Foreign brokers- there also exist many foreign brokers who have a presence in India. Ameritrade and Interactive Brokers are two such brokerage firms. You should ensure that you fully comprehend the charges and procedures before you decide to proceed with foreign brokerage firms.
2. Indirect Investment
You can also choose to invest in US stock markets via indirect investment methods. This means that you would not invest in the stocks directly and instead you would invest using various other gateways. Two of these ways are explained below.
a) ETFs- ETF is an abbreviation of the term, ‘Exchange-traded Funds’. You can choose to expand your investment portfolio and gain exposure by investing in exchange-traded funds. There are two ways of achieving this. You can either choose to directly invest in ETFs via a domestic or foreign broker, or you can choose to invest in an Indian ETF having international manifestations.
b) Mutual Funds- Investing in mutual funds is the most convenient way of investing in international stock markets. By simply keeping in mind the expense ratio of the mutual fund scheme that you choose, you can proceed with investing in the US stock market easily.
Why should I invest in the US stock market?
According to the regulations set in place by the Reserve Bank of India (RBI), an individual who is a resident of India can invest up to 250000 US Dollars, which would amount to about Rs.1.9 crores. This amount is calculated annually which means per year.
Let us now discuss some reasons why investing in the US stock market may prove beneficial.
- Based on past events, it can be said that the US stock market directories have remained less precarious than the Indian stock market directories.
- The most basic reason why you should consider investing in the US stock market is so that you can keep your wealth and assets from eroding against the growing value of the US dollar.
- Most of the corporations having mega global influence are essentially headquartered in the US. This fact presents you with a more diversified investment opportunity.
- The US holds one of the world’s most mature economies. Now, if you plan to move to the US or have your children get their education there, investing in US stocks proves to be a smart idea.
- The US stock market has essentially outdone the performances of the Indian stock market for the past 10 years and that too in pure dollar terms.
- The primary aim of investing in US stock markets is to achieve geographical diversification and exposure.
- The US is considered the centre of innovation in global terms. This offers you the opportunity to invest in a promising company in its preliminary stages.
Some popular US stock market index examples
- DJIA- The Dow Jones Industrial Average
- NYSE- The New York Stock Exchange (the biggest stock exchange in the world)
- S&P500- The Standard & Poor’s 500
It can be thus concluded that investing in foreign stock markets, especially the US stock market proves exceedingly beneficial. By investing in international stocks, you allow your investment portfolio to get diversified and broadened. However, it should always be kept in mind that choosing to invest in foreign stock markets comes with both pros and cons. This should be properly weighed before making the decision of investing further. Therefore, you should investigate all the risk aspects and proceed to invest according to your goals and risk tolerance.