Donald Trump taking the oath as the US President for the second time saw US markets soar. The entire world watched closely how Trump might shape his possible economic policies. There were concerns that if Trump implemented his protectionist policies, as widely anticipated by experts, it could impact the global economy and markets adversely, though it might benefit the US markets.
Against this backdrop, many Indian investors might be planning to invest in the US market. In this story, we will discuss different ways one can invest in the US markets and the benefits and challenges of such an investment. What steps would they need to take?
How to invest in the US market?
If you are living in India and want to invest in the US market, you have three primary ways available.
The first option is through a foreign broker, which is the most simple way for direct investment. Several US brokers allow Indian investors to open accounts, and under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), individuals can invest up to USD 250,000 annually.
The second option is via international tie-ups of Indian brokers, such as ICICI Direct, HDFC Securities, and Kotak Securities, which provide the convenience of opening a 3-in-1 account and even allow the purchase of fractional shares of expensive stocks.
The third option is investing through mutual funds and ETFs is the simplest and safest approach. Many Indian mutual funds and ETFs track major US indices, such as the S&P 500, offering an easy way to gain exposure to the US market.
Benefits of investing in the US market:
- Opportunity to share in global companies: Indian investors get the opportunity to invest in companies like Google, Amazon, Apple, and Microsoft. These companies are leading globally and investors can benefit from their growth.
- Diversification of portfolio: Investing in the US market can diversify your portfolio at the global level, which can balance the risks of the Indian market.
- Benefits of investing in dollars: Investing in US dollars can give you forex benefits many times. If the dollar strengthens, the value of your investment increases.
Key tax rules you should be aware of when investing in US markets:
For capital gains, profits from investments held for more than 24 months are taxed at 20% under long-term capital gains (LTCG) tax. However, investments held for less than 24 months are classified as short-term gains and are taxed according to your income tax slab.
Dividends received from US companies are taxed at a rate of 25% in the US, though this can be adjusted under the Double Taxation Avoidance Agreement (DTAA) between India and the US. Indian tax rules also mandate the declaration of foreign income and assets in the income tax return.
Challenges before investors:
One of the key risks is exchange rate fluctuations between the dollar and the rupee, which can impact the value of your investments. Another consideration is the platform fees charged by international broking platforms, which may reduce your overall returns. Also, investing in the US market without a thorough understanding of the industries, companies, and government policies can pose significant risks.
What should you do as an investor?
If you want to invest in the US market, do your research first. If you cannot track the US market yourself, then opting for mutual funds and ETFs would be a wise move.
