BackShould you be investing in US equity markets?
An array of new mobile apps and portals have made investing in the US markets a breeze. High returns from US stocks such as Tesla and FAANG (Facebook, Amazon, Apple, Netflix and Google) have fuelled investor interest. Mint explains how Indians can invest abroad.
PremiumAn array of new mobile apps and portals have made investing in the US markets a breeze. High returns from US stocks such as Tesla and FAANG (Facebook, Amazon, Apple, Netflix and Google) have fuelled investor interest. Mint explains how Indians can invest abroad.
Why should you invest in the US stock market?
The US stock markets account for 65% of the MSCI World Index, which represents stock markets across the globe. Over the past decade, the US has also been among the best-performing markets, particularly in tech stocks. Firms such as Alphabet, Microsoft, McDonald’s, Coca-Cola and Starbucks derive a significant share of their revenues from outside the US, giving investors a globally diversified portfolio. Foreign stocks are also used to diversify portfolios that already have Indian equities and bonds. Experts also suggest investing in stock markets of other regions such as Europe and BRICS nations.
What kind of returns has it delivered?
In rupee terms, the Nasdaq index has returned around 25% compound annual growth rate (CAGR) over the past decade till 18 January, while the broader S&P 500 index has delivered 19.62% till 31 December. Some tech stocks have delivered better—Tesla is up around eight times over the past year in dollar terms. Rupee depreciation has typically boosted returns from US stocks. The rupee has fallen from around ₹46 to the dollar at the start of the decade to its current level of ₹73. Total returns on the Nifty 50 by contrast over the past decade have been around 11.8% compound annual growth rate.
How much can you invest in international stocks?
Under RBI’s liberalized remittance scheme (LRS), Indians can invest up to $250,000 in global stocks and bonds in a year. Tax collected at source (TCS) of 5% is deducted on remittances above ₹7,00,000 per year. This TCS can be adjusted against other tax liabilities such as tax on salary, biz income. Alternatively, you can claim it as a refund while filing your tax return.
How can such trade be undertaken?
You can invest in international stocks through mutual funds in India which hold such stocks. For instance, the Motilal Oswal NASDAQ Exchange Traded Fund (ETF) tracks the Nasdaq index. Alternatively, a number of Indian fintech players have tied up with brokers in the US to offer global investing. You can directly select a stock broker abroad or you can go via an Indian fintech with a foreign tie-up. Some of these fintech players also offer model portfolios of stocks and ETFs to assist with stock or fund selection.
What are the tax rules to bear in mind?
Global stocks will attract capital gains tax when you book profits. This will be short-term capital gains tax if the holding period is less than two years. However, if the holding period is over two years, the gains will be classified as long-term capital gains and you will be liable to pay a 20% tax with the benefit of indexation. The holding period limit for LTCG is three years in case of ETFs. Dividends from such stocks will be taxable at your slab rate. Also, disclosure of foreign investments is mandatory in your income tax return.
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