Why You Should Consider Investing In US Stocks

The New York Stock Exchange (NSE) is the largest stock exchange in the world for a reason. The US stock market is home to some of the top companies in the world. Trillions of dollars pass through this market every day. It is the playing ground of the biggest investors in the world. In other words, the US stock market generates an unimaginable amount of investor wealth every single day. If you can access a piece of that cake with ease, then there is no reason to hold back.

Advantages of investing in US Stocks:-

1. Diversification

When it comes to investments, diversification is always a good idea. The more variety you bring to your portfolio, the better it is. Geographical diversification, therefore, can be a boon. You can increase exposure to a whole different set of companies, which are governed by different laws and influenced by different factors. Plus, the US stock market is more receptive to newer innovative companies. The criteria for listing on the US stock exchanges are not as stringent as the Indian counterparts. As a result, you can access new-age technology companies along with global tech giants.

2. Lower volatility

The US stock market is more stable. Long-term investments are less volatile in the US than in India. According to Kuvera, the Dow Jones Index had average volatility of 3.92% in the past decade. In comparison, the BSE (Bombay Stock Exchange) Sensex had a volatility of 5.06%. A lower volatility means the stock prices do not fluctuate that much. There are not too many swinging movements. In other words, your money will grow steadily.

3. Faster growth

According to Vested, the Dow Jones Index grew by 196% in the last decade, while the BSE Sensex grew by 150%. This means the US markets have outperformed the Indian markets in the past.

How To Invest In US Stocks:-

There are two main methods of investing in US stocks.

1. Direct

The first is the direct method. You can open an overseas trading account. Earlier, you could only do this through an overseas brokerage platform. Now, however, even domestic brokerage platforms are offering the same facility.

2. Indirect

The indirect method is through mutual funds and exchange-traded funds (ETF). There are several mutual funds that focus exclusively on US stocks and US indices. It is as easy as investing in a normal mutual fund. In fact, you can even go down the SIP route for this.

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Things To Know Before Investing In US Stocks

First, let’s talk about RBI’s Liberalised Remittance Scheme. This scheme governs how much you can invest in US stocks every year. As per the latest allowances, every Indian citizen is permitted to invest up to $250,000 every year.

These limitations owe to the fact that any US investment you make will involve foreign exchange. There are limitations to how much foreign exchange any individual can take out of the country or bring into the country. Even if it is for investment purposes, you still need to stay within certain limits or obtain special permission to exceed them. As long as you stay under this limit, you won’t need to go through any other paperwork.

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Apart from that, you also need to keep the various taxes and charges in mind. Since US stocks are governed by different laws, the corresponding charges are slightly different from normal Indian equities. For example, if your investments exceed ₹7 lakhs, you will have to pay 5% TCS on the extra amount.

In terms of taxes on capital gains and dividends, you actually don’t have to pay this to the US. But you will have to pay foreign capital gains tax in India. This translates to 20% of the capital gains if the investment is held for more than two years. If held for less than two years, there is no extra tax — the profits simply get added to your taxable income.

Bottom Line

Investing in US stocks is similar to Indian stocks but very different at the same time. The same principles apply, and the same logic holds. But the influencing factors might be slightly different. You will also have to keep track of the US markets from time to time, to make sure your investments are doing well.

PRO TIP: To start off, stick to blue chip stocks — well-established companies with strong financials. Do some fundamental analysis and invest for the long-term. Don’t get swayed by Reddit trends and try to make quick money. Such trends rarely last, and more often than not, investors end up losing their savings.

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