us stocks investment: Where & how much should you invest in US stock markets?

Given the nature of the world economy and the underlying conditions after the pandemic, there are enough reasons to invest in markets outside India. As a pureplay investor in the Indian stock markets, your portfolio is exposed to the macroeconomic and geopolitical risks locally, despite having a hybrid investment basket. Any financial event can bring down an investor’s portfolio value faster than a house of cards.

Geographical diversification

A well-diversified portfolio spread across geographies mitigates this risk. Investment in the American markets presents a sound opportunity to not just hedge against risks, but also to diversify one’s portfolio by investing in some of the largest companies globally. The advantage of investing in global corporations is that these companies are spread across the world and are far more insulated in case a market diving event occurs in any one country.

There are other advantages of investing in US stocks as well. Some of these companies are world leaders in technological advancements and innovations. Besides, booming sectors such as artificial intelligence, electric mobility, pharma research and mass-reach technologies are symbols of the great American pride. Last, but not the least, by investing in the US markets, investors can own a piece of the largest Chinese, Japanese and European companies as most of them are listed on American exchanges.

A word of caution
Given these advantages, it makes sense to invest in the US markets. However, there is a note of caution as well. The pandemic is a great leveller and the recent scare with the Omicron variant spooked markets globally, including the American markets. However, large corporations have far greater resilience to sustain such pressures and they, typically, bounce back sooner. Besides, by investing in the US markets, Indian investors gain from the depreciation of the rupee versus the dollar, making investments far more attractive. The rupee has depreciated 44 per cent in the last 10 years against the greenback.

One would also need to keep in mind there are various costs associated with investing in US stocks, costs we may not be used to. These costs could include remittance charges while transferring money to and from the US, withdrawal fees charged by the broker, taxes in the US and other compliance costs. Since some of these costs are flat fees, it may not justify investments of less than Rs 10 lakh. In such cases, investing in Nasdaq-based Indian ETFs or mutual funds having US exposure may be a better option.

Trading in the US markets is easy and most brokerage houses allow you to invest in American markets. The Reserve Bank of India allows individuals to invest up to $250,000 overseas annually. Investment gains are taxed in India. Dividends are taxed in the US, though tax paid there is allowed as foreign tax credit and is offset against your income tax in India. This is because India and the US have a double taxation avoidance agreement.

In conclusion, it may be a good idea to invest a part of your investment corpus in the US markets. As a thumb rule, you should be investing 20-25% of your net of taxes income in the stock markets via platforms. Of this corpus, investing about 15% in the American markets may be a good investment strategy.

(The author is CEO, TradeSmart. Views expressed are personal.)

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