5 Things to Keep in Mind Before Investing in US Stocks

Volatility in the stock market with a continuous shift in the Indian economy has encouraged many investors to include well-performing stocks on the cross-border stock exchanges in their investment portfolios.

One of the preferable markets for Indians is the US stock market when it comes to diversifying across geographies so it is home to the greatest technology potent to wealth-creating businesses. One example is the listing of Robinhood on Nasdaq, which was not available in India. Still, Indian investors can diversify their portfolios in foreign markets with such investment opportunities. Historically, the US market has outperformed Indian markets.

If you are pondering whether to trade US stocks from India or not and know about the functioning of the US market, here are the five important aspects to consider.

1. Regulatory Framework 

Like the Indian stock market regulator, the SEBI (Securities and Exchange Board of India), the US stock market is regulated by the SEC (Securities and Exchange Commission). SEC implements strict laws and ensures the highest standards of transparency enforcement to protect investors. Top US stock market indexes are RUSSEL 2000 index, S&P 500 index, Nasdaq-100 Index (NDX), and Dow Jones Industrial Average (DJI). Investors can keep an eye on these leading US indexes to capitalize on the opportunities. If you prefer small cap funds over these more popular indexes, the best ones are Vanguard Small Cap Index Fund, iShares Russell 200, SPDR S&P 600 small cap ETF. 

2. Exchange Rates 

Investors considering the US markets cannot ignore the exchange rates of two currencies – the US dollar and the Indian rupee. Before an investor buys US stocks, the Indian rupee equivalent to the investment amount is converted into dollars. Later, the booked profits or earned dividends in dollars are converted into rupees. Therefore, the returns are affected by currency fluctuations. Investors can transfer money to and from the brokerage account with a stockbroker offering investing and intraday trading in the US market from India and avoid this risk.

3. No Double Taxation 

Thanks to the double tax avoidance agreement (DTTA) between the US and India, Indian investors can avoid dividend tax. It is taxed at @25% in the US. Investors are allowed to offset the tax that the investor has the liability to pay in India. However, investors still need to pay long-term capital gains tax for the securities with a holding period of two years and short-term capital gains tax for securities with a duration of fewer than two years.

4. Consider the Leaders of Major Industries.

Investors can invest in multinationals performing well in India itself. But cross border investing allows them to invest in leading companies that are not listed on the Indian stock exchange. They can take advantage of giants like Microsoft, Apple, Google, and Netflix shares. Hence investing in the US Stock Market will be more beneficial if you consider the leaders of major industries.

5. Cost Inclusion

Cross-border investing involves transaction charges, like brokerage, account maintenance, currency exchange charges, and bank charges. Overall, the trading cost is a percentage of the total traded volume. Research well before choosing a stockbroker offering intraday trading in the US market from India.

Thus, with this complete picture of the functioning of the US, investors can make informed decisions and consider the US stock to invest in.

Benefits of US Market Investments

  • Investors can profit from a depreciating rupee against the US dollar. The overall returns from the portfolio will increase when money is pulled out after a fall in Rupee.
  • Geopolitical diversification via the US stocks of specific mutual funds helps spread the risk of investing.
  • Mitigate foreign exchange risk with investments in foreign currency.
  • Investors can own a fraction of shares as the US Stock market allows investors to trade infractions. An individual can buy even half a share of a company.

Conclusion 

Accessing the foreign stock markets to discover profitable investments is easier in the online trading system. And cross border investing increases its appeal to Indian investors from a diversification perspective. One can invest in the US market to gain significantly from the best companies present globally. Find a registered broker facilitating cross-border investing.

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