In an interview with ETMarkets, Kashyap said, “The indirect route involves Indian mutual funds and ETF (exchange-traded funds) offering global exposure, particularly to US markets. These investments amount to more than $10 billion.” Edited excerpts:
How many Indian investors are there? Invest What kind of money moves in the US markets?
Indians are increasingly diversifying their portfolios by investing in US markets, both directly and indirectly. Total direct investment by Indians in US markets is estimated to be around $6 billion, of which over $1 billion was remitted last year alone.
Through the direct route, Indian investors have the option to create accounts with US-based brokers and send money through the Liberalized Remittance Scheme (LRS) and invest directly in US stocks and ETFs.
The indirect route involves Indian mutual funds and ETFs that offer global exposure, particularly to the US markets. These investments amount to over $10 billion.
In total, it is estimated that over 4 million Indian investors have exposure to US markets through these avenues.
Which theme is dominating the US markets: FAANG or Magnificent 7? Or is there another theme that is finding more buyers?
Indian investors on platforms like INDmoney have shown keen interest in diversified themes, but there is a marked preference for large-cap technology and AI companies in the US.
The Magnificent 7 (which includes FAANG companies and newer tech giants like Nvidia) are particularly popular. This preference aligns with the global trend of investing in technology and AI-driven growth.
Which is more popular: fractional investing in stocks or ETFs?
We have seen a balanced interest in both asset classes. Fractional investing in US stocks is attractive for those looking to buy shares of high-value companies like Amazon or Tesla for as little as $1 (less than Rs 100).
On the other hand, ETFs are popular for their ability to offer diversification across sectors and geographies. Investors appreciate the global exposure offered by US-listed ETFs, allowing them to diversify beyond the Indian market.
Recently, we have also seen interest in a new asset class – Unsponsored Depositary Receipts (UDRs) traded on NSE-IX, a subsidiary of NSE India.
These instruments offer flexibility to invest fractionally in US stocks (similar to direct investment in US companies), but are more trusted by investors due to their link with IFSCA and NSE.
The US Federal Reserve has hinted that it will likely cut rates at its next policy meeting. How would that affect markets?
While specific market movements cannot be predicted, historically rate cuts or a change in the interest rate cycle tend to drive asset allocation from fixed income to equities.
This change usually generates positive reactions in markets globally. However, macroeconomic concerns such as inflation continue to play a crucial role in market sentiment, and these factors should be considered alongside rate changes.
What are the transaction fees for investing in US markets?
When investing directly in the US markets, the initial step involves converting INR to USD via the LRS route using the investor’s bank account, which typically involves a 1-2% conversion and processing fee, depending on the bank.
On platforms like INDMoney, preferred banks offer competitive rates, with currency conversion costs of less than 1%. The process is fast, digital and completely paperless. Once an investor’s funds are in their US stock wallet, investing in US stocks or ETFs attracts regulatory and brokerage charges, similar to those in the Indian market. Not to forget, any benefit from the USD-INR exchange rate adds to the returns.
Why should anyone consider investing in the US despite Indian markets trading near all-time highs?
If you use platforms like WhatsApp, YouTube, Facebook, Instagram through your Android or Apple device, you are already contributing to the growth of global technology companies.
Indians make up a significant portion of the user base of US-based products and services, from Google and Meta to Apple and Amazon. Investing in these companies allows them to benefit from their growth and wealth creation.
Additionally, US markets offer access to sectors and geographies that are not well represented in the Indian market, providing an opportunity for diversification. Lastly, Indians can also benefit from movements in exchange rates.
How does investing in the US help diversify a portfolio?
Investing in the US markets allows Indian investors to participate in the growth of global technology giants and innovative cutting-edge industries such as artificial intelligence, semiconductors and electric vehicles.
Additionally, U.S.-listed ETFs allow investors to gain exposure to multiple global markets, offering diversification across different economies and sectors that are not available domestically.
What risks should be considered when investing outside India?
The risks associated with investing in U.S. markets are similar to those of any equity investment, including market volatility and economic factors.
However, investing through a US broker, especially one available through platforms like INDMoney, provides additional security with the protection of the Securities Investor Protection Corporation (SIPC), which insures assets up to $500,000 (approximately INR 4 crore).
With the aim of making investment in the US markets safer, INDmoney Group has obtained a brokerage license in GIFT City to enable its users to invest in UDRs traded on the exchange provided by NSE-IX, a subsidiary of NSE.
These instruments provide direct exposure to US companies and the flexibility to trade/invest in GIFT.
What about taxation for Indian investors in US markets?
Gains from the sale of shares in the US are subject to capital gains tax in India. Long-term capital gains (LTCG), applicable to shares older than 24 months, are taxed at 12.5%. Short-term capital gains (STCG) are taxed at the investor’s income tax rate. These taxes must be declared as part of your regular tax returns in India.
(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of the Economic Times)
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