US Stock market is a very lucrative market for investors who have tried their hands in the Indian Stock market for quite a while.
No doubt, the US stock market offers a wide range of opportunities to invest in tech companies like Google, Apple, Tesla and much more and Indian investors want to take as much as possible from this opportunity.
Before beginning your journey in the US market, one needs to thoroughly understand the US Index. Just like in India we have Nifty 50 and Sensex to gauge the market performance, similarly we have S&P500 to measure the US market.
Why should you invest in US market
Investors usually invest by identifying the trend in the market. Sometimes these companies may not be available in the Indian stock market to take advantage of.
In today’s times where companies like Tesla, Facebook and Microsoft are future ready with their innovative research products and investors are keen in taking a share from their profits.
Investing in foreign markets can also be a great means to diversify your equity portfolio. Here country oriented risk like change in Government can be mitigated and the overall equity portfolio remains intact.
How to get in to the pool of US equity
There are two major ways where one can start it’s US equity journey:
Invest through mutual funds
Investing in US market through mutual funds is by far the most simple and effective way for an investor to enter in a foreign equity.
There are specially catered mutual funds that are involved in investing only in US stock market. These mutual funds come in a range from investing in US Funds like S&P 500 or just investing in sector based funds like Tech Sectorial based companies.
The number one advantage of investing through mutual funds is that you don’t have to spend your time doing the research work to pick and choose the right stocks to enter into.
The mutual fund house will create a pre defined portfolio for you, where your amount will get equally invested in all the stock under that basket.
Another advantage is that you can invest in a large number of US companies for as low as Rs. 5000. Thus, down siding the risk to a large extent.
As the mutual fund are Indian based, the tax structure is the same as of Debt Mutual funds. This means that if these mutual funds sold before 36 months will be considered as short term holdings and will be subjected to short term capital gain tax and holding for more than 36 months will be considered under long term capital gain tax.
Some disadvantages that come with investing through mutual funds
Some of the mutual funds offer a high expense ratio which can go up to 2%. These high expense ratios can lower your profits in the long run.
Pro tip: While investing in foreign mutual funds, make sure you select passive based mutual funds like Index funds. This will lower your expense ratio drastically and give you better returns over a prolonged period.
Investing directly in US stock
Using IND Money app
IND Money is a popular app that allows investors to invest in US market directly. This app gives access to a lot more features like investing in bonds, stocks and all other mutual funds. It also has an advisory service that provide investors with US stock news and updates for your analysis.
How to open your account with IND money
- Account creation: Download the App from the play store or App store. Log in with your mobile number / email id and fill in your basic details like Name, DOB etc.
- KYC verification: The next step is complete your KYC verification. In this step you will need your PAN and Aadhar card, where you will be instructed to upload the following documents. Once these mandatory details are filled, you are good to go.
IND money has tied up with SBM Bank Mauritus Limited, for facilitating US dollar transactions. Upon creating an account with IND money, your bank account with this bank will be auto created. This is done to easily convert your INR deposit to USD to facilitate the US transactions.
I have been personally using IND money app to invest in US stocks and it has provided me an absolute platform to conduct my research, invest and monitor my investments.
Challenges faced when directly invested in US stocks
This is a major disadvantage and the investors need to know about the taxation rules before proceeding with investing in US stocks.
The taxes on stocks levied are of two types:
- Tax on capital appreciation: For long term capital gain tax (holding for more than 24 months) the profits are taxed at 20% for foreign capital gain tax. The short term capital gain is taxed as your regular business income and it depends on your tax slab.
- Tax on dividend income: The dividend income are taxed at 30% which is a flat fee.
You should also think about TCS (Tax Credited at Source), which was recently established. All capital inflows above INR 7L in a fiscal year will be subject to an additional 5% TCS under this new guidelines.
As you may have analyzed, the tax structure can be a major down sight for many investors. The best way to avoid losses due to tax is by entering with a mindset for long term investment. In this way you will be exempt from capital gain tax until you realize your profit, and by staying invested for a longer time can boost your returns.
Some US based mutual funds to consider investing
The following are some mutual funds investment recommendations for a first time investor in the US market.
- Motilal Oswal Nasdaq 100 FOF
- SBI International Access US Equity
- Edelweisis US Technology Equity FOF
Disclaimer: Note that there mutual fund recommendations are just for educational purpose. Please do your own research or consult your financial advisor before investing.
Also read my blog on “5 Effective Ways To Avoid Losing Money In Stock Market” as a bonus to avoid some petty mistakes to lose money, which of course applies to the US markets as well.