The US stock market has entered 2021 on the back of some strong performance in stock prices of the blue-chip US stocks. While some stocks have generated more than 100 per cent of returns over the last 12 months, the US stock market indices like RUSSEL 2000 index, S&P 500 index, Nasdaq Composite Index, Nasdaq-100 are sitting pretty at elevated levels. The Facebook share price is about $267 and the stock has generated nearly 22 per cent return over the last 1 year. The YTD return, however, has been about a negative 2.67 per cent. Tesla trading at around $867 is up by more than 20 per cent in 2021.
If you are looking to invest in the US stock market to take advantage of the US equities, you can open an international trading account in India and get going. But, before you do that, here are five key things to know for a better investing experience.
Emerging economies like India remain a strong focus for global investors. However, diversifying one’s portfolio across geographies bring an element of safety and potential of a high-risk-adjusted return to one’s portfolio. If you think that your investment portfolio in India is well-diversified across market capitalization, sectors, assets classes, think again. Diversification is not complete unless one takes exposure to different geographies. Over the long term, one of the major risks to a portfolio is the country risk.
A sudden turn of events in the internal economic or political situation may wipe a major chunk from one’s portfolio. One should not have any home-country bias when it comes to making money from stock markets. A well-diversified global portfolio is in a position to withstand any stock market gyrations much better than a portfolio exposed to one economy. So, what the solution? Diversification. And what’s better than taking exposure to the US economy?
2. Why US Stocks
The US stock market has all the essentials in place – the strength of its 20-trillion economy, global firms of China, Japan and other developed countries listed on their stock exchanges, the high volume of trades, the huge market capitalisation of stocks, thus providing liquidity, transparent, yet strict financial market regulations and above all low-cost investing options.
From Facebook, Amazon, Apple, Netflix to Google, popularly known as FAANG stocks, you can own shares in these and other big US firms such as Microsoft. Further, there are non-US global blue-chip companies listed on the US stock exchanges such as Chinese giants Alibaba, Tencent Music, Baidu and many more. The consumer-led demand in these companies is overwhelming and it’s time to profit from their growth in US economy.
3. Top US stock market indices
For starters, keeping an eye and tracking the leading 5 US indexes for cashing on the opportunities is important. Here are five top US indexes to be glued to if you want to track the US markets – RUSSEL 2000 index , S&P 500 index, Nasdaq Composite Index, Nasdaq-100 Index (NDX), and Dow Jones Industrial Average (DJI)
4. Buying dollars with Indian Rupees
You need to buy the US dollars from the Indian rupees to invest in the US stocks. The rules governing foreign exchange (forex) transactions come under the ambit of Liberalised Remittance Scheme (LRS). The rules clearly mention that one can remit foreign exchange only for any permissible current account transactions or capital account transaction or a combination of both. Currently, under the LRS rules, any resident individual including a minor ( countersigned by a guardian) is allowed to remit up to 2.5 lakh US dollars (USD 2,50,000 ) in each financial year. At an exchange rate of Rs 76 to a dollar, it is about Rs 1,90,00,000 or Rs 1.90 crore.
5. Fractional owning of shares
One of the most unique features of investing in US stocks is about owning fractional shares. Some of the big stocks such as Google or Apple are trading at $200 to up to $2000 or more. Not to worry, you can still own them. Let’s say, a share is traded at $500, you can still own half-share by investing $250. There are thousands of stocks across different US indices such as S&P 500, NYSE or Nasdaq and you can build a portfolio with exposure to one or more of them even with limited funds.