One of the critical things associated with investing is diversification. It refers to spreading your investments across various asset classes. Geographical diversification is also an important aspect to consider by investors. For geographical diversification strategy, investing in the US market has gained popularity in India. Investment in the US Stock Market is a good opportunity to hedge against risks and diversify a portfolio with some investments in giant companies globally.
Investors can look at mutual funds oriented explicitly toward the US stocks or invest in US stocks directly. The NSE IFSC allows investors to invest in US-based companies. You can invest in leaders like Tesla, Apple, etc.
An investor considering the US stock market Provides Analyst Ratings that needs to understand some important things and keep in mind before investing in the US market.
RBI’s LRS for Indian Residents
RBI allows Indians to invest under the Liberalised Remittance Scheme (LRS). It enables Indian residents to remit up to $2,50,000 annually, including any payments made in foreign currency. It means an individual can buy shares in the foreign stock markets up to this limit.
Exchange Rate Fluctuations
If you want to invest in the stock market for a considerable time, then the foreign currency exchange rate is not a big deal. But for traders, exchange rates can add up to a significant amount. Forex markup fee is also a consideration charged by the banks to remit foreign currency. It can be between 0-3%, depending on the bank.
There is a double taxation avoidance agreement (DTAA) between the US and India, and investors need to consider the following two aspects here – capital gains and dividend tax.
- Capital tax in the US: The US stock market does not involve capital gains tax on stocks, so investors need not worry about it.
- Dividend Tax: The US government imposes a dividend tax of 30% for investors from other countries. The good news is that it allows offsetting dividend tax paid in the US against the investor’s tax liability in India.
- Capital gains in India: Investors gaining on their holdings of less than two years are considered short-term capital gains. Tax is charged as per the tax slabs applicable to the individual. For long-term holdings, i.e., more than two years, the tax rate applicable is 20%. There is the benefit of indexation also – adjust your long-term investment for inflation rates.
To trade US stocks from India, investors need to open an account with a brokerage firm offering the facility to invest in US stocks. It charges the annual maintenance fee, transaction fee, and other costs associated with the service, depending on the capital you invest in US stocks from India.
Investors can make the right portfolio mix after considering these key aspects. With the changing time, the portfolio mix also needs to evolve. The US market can help you in this as it has been one of the top choices for diversifying investments across geographies.
One of the benefits of investing in the US market is participating in the growth of the most prominent Japanese and European companies to make profits, as most are listed on the US stock exchanges. Large companies have far greater resilience to sustain huge global pressures like the ongoing pandemic, and they bounce back sooner.
Thus, investors can take advantage of US stocks for a well-diversified portfolio spread across geographies and mitigate the risk. Invest in global entities that are far more insulated from big event markets in countries. Some of these US companies are global leaders in technological advancements also. Investors can consider the booming sectors like artificial intelligence, electric mobility, pharma research, etc, to gain significantly.
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