When it comes to diversifying your portfolio across geographies, the US stock market is one of the best options. The nation is home to some of the top technological companies as well as other wealth-generating enterprises that present excellent investment prospects. Additionally, it is a desirable potential due to the minimal correlation between the Indian and US equities markets.
What to keep in mind before investing in US stock markets?
The Liberalized Remittance Program: Under the LRS, or Liberalized Remittance Scheme, of the RBI, you are able to invest in the US stock market. Every Indian resident who participates in the programme may send up to $250,000 annually. This cap is per person, including minors, thus a family of four can send up to USD $1 million in one fiscal year. This quota covers all investments, such as US securities, real estate, bank accounts, etc., as well as any out-of-country costs, such as travel and higher education.
Geographical Expansion: Your portfolio’s geographic diversification delivers stability. Markets in mature nations are typically less volatile in the long run than those in emerging nations. You can take part in the tale of global growth by making investments in the US stock market. For instance, if you invest in Alibaba, the largest retailer in China, you can now benefit from the country’s economic expansion. You can also gain exposure to larger economies through ETFs listed on the US market. Additionally, you can invest in new themes on the US stock market, which is a possibility not now available in India. You cannot invest in large semiconductor or electric vehicle makers in India. You could, however, put money into Tesla or Nvidia in the US.
Foreign exchange’s effect: The variation in the exchange rate should be taken into account while investing in the US market. The rupee has lost value versus the US dollar on average by 3 to 5 percent in recent years. When you participate in US markets, you do so at the risk of investing in the US Dollar. Your portfolio’s worth increases when the value of the US dollar rises, and vice versa. Your Indian bank can additionally charge you an FX conversion fee or spread when you send money to invest in the US. Depending on the bank, this can range from 0.5% to 2% of the amount transferred.
The DTAA scheme: To make your efforts worthwhile, it is crucial to take into account the tax implications of your international assets. A double tax avoidance agreement (DTAA) between the US and India forbids taxing the same income more than once. Your stock market investments in the US are subject to two taxes, Dividend and capital gains tax.
Conclusion: US stock markets can be a good option when you want to invest for good return and for more and diverse options. All this is provided you keep in mind the taxation and other factors that add up to it. Along with this you also need to keep in mind your life goals and brokerage charges that you might have to pay.