Indian investors are increasingly looking to invest in international markets to earn higher returns and diversify their portfolios. The US stock market, with indices like the S&P 500 , Dow Jones , and Nasdaq , has delivered impressive returns over the past decade. For example, the S&P 500 has more than doubled in the last 10 years, outperforming the S&P BSE Sensex.
Mutual funds (MFs) offer a simple and regulated way for Indian investors to gain exposure to US stocks. Here’s a complete guide on how to invest in US stocks via mutual funds.
Ways to Invest in US Stocks via Mutual Funds
Currently, the easiest way for Indian investors to invest in US stocks is through US-focused international mutual funds. These are typically Fund of Funds (FoFs) or other international mutual funds that invest in US equities or equity-related instruments.
How It Works
- Fund of Funds (FoF): These mutual funds invest in other mutual funds, including those that track US indices like the S&P 500 or Nasdaq.
- Direct International Mutual Funds: Some Indian fund houses offer schemes that invest directly in US-listed equities.
- Exchange Traded Funds (ETFs): US-focused ETFs listed in India track indices like the Nasdaq 100 or S&P 500 and trade like shares on Indian stock exchanges.
Points to Note on US-Focused International Mutual Funds
- Diversification: Investing in US stocks via mutual funds provides geographical diversification, reducing the risk of your overall portfolio.
- Currency Appreciation: Exposure to the US dollar can help hedge against the depreciation of the Indian rupee.
- Regulation: These funds are regulated by SEBI, making them safer and more accessible for Indian investors.
Who Should Invest in International Mutual Funds?
International mutual funds are suitable for investors with the following objectives:
- Geographical diversification to lower portfolio risk
- Hedge against rupee depreciation
- Supplement domestic equity exposure with foreign economies
Experts suggest that companies like Apple , Amazon , Microsoft , and Google are well-positioned to handle global disruptions. However, no investment is risk-free, and a tech slowdown in the US can affect these stocks.
Risks of Investing in International Mutual Funds
- Foreign Market Risk: Exposure to economic, political, and market risks of foreign economies.
- Exchange Rate Risk: Fluctuations in foreign exchange rates can impact returns.
- Concentration Risk: A concentrated portfolio may be affected by sector-specific downturns.
Tax Implications of International Mutual Funds
- Long-Term Capital Gains (LTCG): Gains on redemption after 3 years are taxed at 20% with indexation benefits.
- Short-Term Capital Gains (STCG): Gains on redemption before 3 years are taxed according to your income tax slab.
- Dividends: Dividends above ₹5,000 are taxed based on your tax slab. Resident investors face TDS at 10% (currently 7.5%), while non-residents face TDS at 20%.
How to Get Started
- Research and Select a Fund: Choose a mutual fund that aligns with your investment goals and risk tolerance.
- Invest via SIP or Lump Sum: You can invest systematically through SIPs or as a lump sum.
- Monitor and Review: Regularly review your investments to ensure they align with your financial goals.
Conclusion
Investing in US stocks via mutual funds is a seamless way for Indian investors to gain exposure to some of the world’s largest and most innovative companies. By investing through international mutual funds, you can diversify your portfolio and potentially benefit from the growth of the US economy. However, it’s important to consider the associated risks, costs, and tax implications before investing. Choose funds that align with your financial goals, risk tolerance, and investment horizon.
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