Does it makes sense for Indians to invest in US equity market?

General
21

Funda is multiplication of say 75, If one invest or trade with at least 15K dollar is worth playing American market.

22
23

Nice analysis. Forward market premium backed FD is new thing should try

I usually create FD in Singapore DBS bank,as unlike USA itā€™s government bank. Thatā€™s the biggest advantage I face. Like I made FD when rupees was rs 50 now I broke the FD when rupees is rs74 and sent money to India for building new house for parents. I used to get 4% to 5% now interest rates r par with india.

PMS is great option should try out soon. I invest in stock market through my mother and father using there money. Like my mother has an account and use her fundā€™s to invest and also the funds I sent her as giftā€¦this way I can bypass need to use A2 forms and also costly brokage.

24

Hereā€™s my take on it:

If you have a sizable portfolio in the Indian stock market via direct equity or via mutual funds, and feel the need to diversify and explore other options, investing in US stocks makes sense. Otherwise you tend to be investing in the same set of companies via different MF, or direct equity.

I have seen the tabular representation that is shared in this thread which denotes the loss of money simply by moving the funds back and forth to India. I believe it is an illogical consideration if you are a long term investor and are looking at building a decent size portfolio in US stocks.

If you are planning to diversify less than Rs. 50000 a month or have less than a 5 year horizon, I donā€™t think you should consider investing directly in US stocks. For such purposes, you would be better off investing with Indian MF that invest in US stocks, as someone in this thread has rightly mentioned.

But if you are looking at keeping aside a larger sum every month, then by all means consider the US stocks. This is why I favour investing there:

  1. Investing in a different geography and companies that do not depend on Indiaā€™s economic conditions helps spreading your risk

  2. Someone in this thread has said that US stock markets give lesser returns than a developing economy such as India. Thatā€™s true if you are looking at investing in Index funds such as S&P 500, Nasdaq Top 100, Dow. But remember that most of the biggest innovations take place in USA. Such companies have a much higher growth trajectory than the index. Yes, you would need a good study to find those companies from the 5000 odd stocks. You would also get a sense of satisfaction that you have invested in one of those innovative companies. If you are unable to research yourself, there are professional services available for helping you narrow down. And those services are not necessarily expensive if you look around a bit. Rest of the decision is yours,

  3. Someone in this thread has warned that there is 5% TCS deducted by the bank. If you are not filing returns, this can be a hurdle. I donā€™t believe anybody having surplus Rs. 50k /month for investing via bank route and passing the above mentioned criteria would not be filing tax returns. So if you are a tax payer, you can certainly claim credit for the TCS paid, absolving you from a so-called expense.

  4. Someone in this thread has warned about 3.5% commissions of the bank while converting the currency. These are true for some of the old school banks who have bloated costs for literally every service. I encourage you to look at other competitive offerings. Some private banks charge commission as less as 1% with very low transfer charges.

  5. INR is going to continue its downward journey against USD for the next few years. India cannot compete with other countries for exports if INR rises. Hence be assured, the Govt. will never let that happen. This will indirectly help you when you bring those funds back to India assuming you have at least a 5 year horizon.

  6. If you sell the US stocks after 2 years, the taxation rate in India is 20% and is eligible for indexation benefit. There is no tax payable in USA. If you sell within 2 years, it will be a short term gain as per your tax slab. Dividend is taxable in USA, but you can claim credit for that while filing your tax returns in India. Some of the new age investing apps provide a tax statement, and hence you donā€™t need a CPA from USA to do any filings for you. Hence taxation wise also, I donā€™t see a hurdle.

So depending on your investible funds and time horizon, you can take a call.

Note that there are several apps that let you invest in US stocks. You need to carefully compare them on parameters like:

  1. Charges to load funds and withdraw funds (ideally to be withdrawn when your investment goals have reached)
  2. Ability to invest in fractional shares (some apps have a very narrow selection of shares for fractional investing which is never known till you start investing)
  3. Some charge brokerage for buying and selling. Some others have no charges at all.
  4. Some apps have only selected stocks available in the base level, and may require you to upgrade for a wider stock selection.
  5. Some support Limit orders while buying/selling, some support only market orders, and some others support Limit orders for only complete share, not fractional.

Whichever app you choose, make sure you know which broker through which they are connected. Always ensure you are NOT investing through some ā€œgrey marketā€ company who may not be under Indian regulations. Go only via legitimate apps/Indian institutions.

I really wished Zerodha had taken the lead to bring a product containing the best of features, but apparently they donā€™t see a mass market for this, which is true. As said at the start, US stocks are not suitable for the general retail market which Zerodha is focussing on.

Hope my answer has given you some practical points to consider in reaching a decision.

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