In an interview with ETMarkets, Kashyap said: “The indirect route involves Indian Mutual Funds and ETFs offering global exposure, particularly to U.S. markets. These investments amount to over $10 billion” Edited excerpts:
How many Indian investors are investing in U.S. markets? What is the kind of money riding on U.S. markets?
Indians are increasingly diversifying their portfolios by investing in U.S. markets, both directly and indirectly. The total direct investment by Indians in U.S. markets is estimated to be around $6 billion, with over $1 billion remitted in the last year alone.
Through the direct route, Indian investors have the option to create accounts with US based brokers and remit money via the Liberalized Remittance Scheme (LRS), and invest directly in U.S. stocks and ETFs.
The indirect route involves Indian Mutual Funds and ETFs offering global exposure, particularly to U.S. markets. These investments amount to over $10 billion.
In total, it is estimated that more than 4 million Indian investors have exposure to U.S. markets through these routes.
Which theme is dominating the U.S. markets – FAANG or Magnificent 7? Or is there any other theme which is finding more buyers?
Indian investors, on platforms like INDmoney, have shown a keen interest in diversified themes, but there is a marked preference for Mega Cap tech and AI companies in the U.S.
The Magnificent 7 (which includes FAANG companies plus newer tech giants like Nvidia) are particularly popular. This preference aligns with the global trend of investing in tech and AI-driven growth.
Which is the more popular instrument – fractional investing in stocks or ETFs?
We have seen a balanced interest across both asset classes. Fractional investing in U.S. stocks appeals to those looking to own shares in high-value companies like Amazon or Tesla for as low as $1. (Less than Rs 100).
On the other hand, ETFs are popular for their ability to provide diversification across sectors and geographies. Investors appreciate the global exposure that U.S.-listed ETFs offer, allowing them to diversify beyond the Indian market.
Recently, we have also seen interest in a new genre of assets: Unsponsored Depository Receipts (UDRs) traded on NSE-IX, a subsidiary of NSE India.
These instruments offer flexibility of fractional investing in US Stocks (similar to direct investment in US companies) but are more trusted by the investors due to its nexus to IFSCA, and NSE.
The U.S. Fed hinted at a possible rate cut probably in the next policy meeting. How would that impact the markets?
While specific market movements cannot be predicted, historically, rate cuts or a shift in the interest rate cycle tend to drive asset allocation from fixed income to equities.
This shift often results in positive market reactions globally. However, macroeconomic concerns such as inflation still play a crucial role in market sentiment, and these factors must be considered alongside rate changes.
What are the transaction charges for investing in U.S. markets?
When investing directly in U.S. markets, the initial step involves converting INR to USD through the LRS route via the investors bank account, which typically incurs a conversion and processing fee of 1-2%, depending on the bank.
On platforms like INDMoney, the preferred banks offer competitive rates, with exchange conversion costs of less than 1%. The process is quick, digital and completely paperless. Once an investor’s funds are in their U.S. stocks wallet, investing in U.S. stocks or ETFs incurs brokerage and regulatory charges, similar to those in the Indian market. Not to forget that any USD-INR exchange rate benefits are over and above the returns.
Why should someone consider investing in the U.S. even though Indian markets are trading near record highs?
If you’re using platforms such as WhatsApp, YouTube, Facebook, Instagram via your Android or Apple device, you are already contributing to the growth of the global tech firms.
Indians form a massive part of the user base of U.S.-based products and services, from Google and Meta to Apple and Amazon. Investing in these companies allows Indians to benefit from their growth and wealth creation.
Furthermore, U.S. markets offer access to sectors and geographies that are not well represented in the Indian market, providing an opportunity to diversify. Lastly, Indians also stand to benefit from movements in currency exchange rates.
How does investing in the U.S. help diversify a portfolio?
Investing in U.S. markets allows Indian investors to participate in the growth of global tech giants and cutting-edge innovative industries such as AI, semiconductors, and electric vehicles.
Moreover, U.S.-listed ETFs enable investors to gain exposure to various global markets, offering diversification across different economies and sectors that are not available domestically.
What risks should one be aware of 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 via a U.S. broker, especially one available through platforms like INDMoney, provides additional security with the Securities Investor Protection Corporation (SIPC) protection, which insures assets up to $500,000 (approximately INR 4 crore).
With a view to make investing in US markets more secure, INDmoney group has obtained a broking license in GIFT City to enable its users to invest in UDR which are traded on exchange provided by NSE-IX, a subsidiary of NSE.
These instruments provide direct exposure to US companies and the flexibility of trading / investing in GIFT.
What about taxation for Indian investors in U.S. markets?
Profits from selling U.S. holdings are subject to capital gains tax in India. Long-term capital gains (LTCG), applicable on holdings longer than 24 months, are taxed at 12.5%. Short-term capital gains (STCG) are taxed according to the investor’s income tax slab rate. These taxes need to be reported as part of your regular tax filings in India.
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