You can invest in the US stock markets through mutual funds and ETFs to get the benefit of diversification
In today’s technology-driven world, it is possible to invest in the US markets from India in a very simple manner and be a part of the global growth story. You may be wondering how one can add US market exposure to your portfolio? One way is to directly invest in US stocks. Here, you directly buy the stock of a certain company. However, picking which stocks to invest in takes a fair bit of expertise and understanding of the stock market and company financials. The other way to invest in the US stock markets is through mutual funds that invest in US stocks or through ETFs. Both mutual funds and ETFs provide the benefit of diversification.
For investing in the US markets, you need to wire funds to the US. As an Indian resident, you are allowed to do this under the RBI’s Liberalized Remittance Scheme which lets you remit up to US $250,000 per year, per person.
Let us take a deeper look at how to invest in the US stock markets through mutual funds and ETFs.
Invest in an international mutual fund investing in US stocks
In this case, you will be investing in funds of funds i.e. a local mutual fund that invests in a mutual fund available in the US. Some examples of such mutual funds would be the Nippon India US Equity Opportunities Fund, the ICICI Prudential US Bluechip Equity Fund, and the Franklin India Feeder Franklin US Opportunities Fund.
There are a couple of things you need to note here. First, there is no investment limit as an investment will be made in Indian rupees. Another thing to consider when investing in mutual funds is the expense ratio. Expense ratio refers to the annual fee that is charged to the investors to cover the operational and administrative expenses of the mutual fund. When you are investing in US stocks through a local mutual fund that invests in a mutual fund that invests in US stocks, the annual expense ratio tends to be on the higher side. This is because apart from the general India fund management fee, it also includes an additional expense charged by the underlying international schemes they invest in. A higher expense ratio eats into your returns. Hence, investing in US stocks through mutual funds that invest in US stocks may turn out to be costly.
Invest in ETFs traded on the US stock exchange
Another way to invest in the US stock markets if you are not directly investing in US stocks is through ETFs. What is an ETF? ETFs refer to a collection of many stocks/bonds which are traded under one fund. They are similar to mutual funds. However, ETFs are traded on the US stock exchange with real-time pricing and provide an easy and cheap way to get exposure to a sector or a group of companies. One option you have is to buy an ETF on a platform like Vested. For example, Vested lets you invest in index ETFs like the Invesco QQQ Trust which is based on the NASDAQ 100 index. Some of the largest holdings of this ETF include companies like Amazon, Apple, Microsoft, Meta (Facebook), Netflix and Google (Alphabet), and also Tesla.
Buy ETFs in India that invest in US stocks
Another way to invest in US stocks from India is to buy ETFs available in India that invest in US indexes like S&P 500 via an ETF such as the Motilal Oswal S&P 500 Index Fund. You can also invest in a fund of fund like Mirae Asset NYSE FANG+ ETF Fund of Funds. You can invest in these ETFs without opening a new US brokerage account. However, your returns might be impacted by tracking errors that these ETFs suffer from (we explain this in a video here).
In conclusion, we have seen how to invest in the US markets through mutual funds investing in US stocks and through ETFs (both listed in India and directly in the US) and why investing through ETFs traded on the US stock exchange is a better option.
Our team members at Vested may own investments in some of the aforementioned companies/assets. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. Note that past performance is not indicative of future returns. Investing in the stock market carries risk; the value of your investment can go up, or down, returning less than your original investment. Tax laws are subject to change and may vary depending on your circumstances.
This article is meant to be informative and not to be taken as an investment advice, and may contain certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, without limitation, estimates with respect to financial condition, market developments, and the success or lack of success of particular investments (and may include such words as “crash” or “collapse”). All are subject to various factors, including, without limitation, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors that could cause actual results to differ materially from projected results.