Stock Market and Trading has become a conversation starter in the new and young India. Indians have turned towards the world of trading as the pandemic has given them a new avenue to be hooked on. A new investor can start small with very little money and invest in any company he fancies.
There has been a steady rise in the number of Indians turning towards trading even after the market meltdown during the pandemic. Technology and mobile trading apps have given them easy access to the stock markets. Also, technology has enabled them to be savvier of their savings and to learn better about the markets.
However, if you are looking to get a piece of your favorite tech company, say Apple, you won’t find it. The biggest brands that have become a part of your daily life like Apple, Netflix, Google, Facebook, Amazon are listed on the US Stock Market.
The US Stock Exchange is one of the world’s largest stock exchanges with a very diversified and varied list of companies to invest in. The market consists of a variety of sectors ranging from energy to automobile to technology and a lot of others.
Following are the benefits of Investing in US Stocks:
The US is the home to Silicon Valley that comes up with innovation every day. New companies and startups with unique products emerge from time to time that catch the eyes of potential investors.
A single share of Google (Now traded as Alphabet) in the year 2004 when it launched its IPO was USD 85 while in the year 2021, that single share of Google trades at USD 2402.22. The US Stock Market also offers an extensive array of opportunities to invest in new next-gen innovations like Artificial Intelligence, Machine learning and Biopharma.
An Investor can choose any new company which interests them or can go for the big fish in the business. Companies like Facebook and Amazon might start as teenage adventures in garages but be sure to look out for them as you never know what opportunity you might miss.
Investing in the US markets helps you diversify your portfolio as the market offers extensive avenues to invest in top sectors of Technology, Finance, Automobile and Gold. Investing a part of your assets in such markets also makes you independent of the Indian stock markets and the Indian economy. This is extremely important as was witnessed last year when the US stock market was quick to recover from the dip it took from the coronavirus pandemic – proof of its strong foundation that ensures better returns while minimizing risks.
The US Stock markets are truly global as companies from all over the world are listed on NASDAQ and NYSE. So you can also invest in companies from China, Japan, Germany etc. The US markets provide access to an International market like none other stock market does and its reach throughout the world is unparalleled. Thus, it helps in maintaining a diverse portfolio and minimizing risk as your portfolio will be spread over a large number of companies.
S&P 500 Index
The US Stock market has 500 of the largest companies listed on its stock exchanges. S&P 500 index is based on the market capitalization of these companies listed on NASDAQ and NYSE.
The top 10 companies in this list like Amazon, Tesla, Facebook, Alphabet (Google), Apple, Hathway, JP Morgan Chase and others have only outperformed themselves every year and account for 27.5% of the overall market capitalization. If you are looking to invest long term and to secure steady dividends, you will definitely want a piece of these companies.
Indians investing in the US Stock market are often worried about the taxation rules that apply to them. Firstly, if an Indian citizen owns stocks in the US stock markets, he/she is liable to only 25% tax as per US laws which is lesser than what any other foreign investor has to pay. This is due to the tax treaty between India and the United States of America.
Thus, if a company is paying out a dividend of USD 100 you will be liable to pay a tax of USD 25 which will be withheld before the dividend payout. Therefore, you will receive a dividend of USD 75.
The other thing most Indian investors are anxious about is the double taxation of revenues from the US stock market. E.g. In the above case, the dividend of USD 100 which was paid out is also taxable according to the Indian taxation laws in lieu of the slab rate applicable to you as per Indian Laws.
The US and India though have signed a taxation treaty to avoid this double taxation of income, called the Double Taxation Avoidance Agreement (DTAA). Thankfully, as a result of the DTAA treaty, you will be able to offset the US withheld tax against your dividend payout and use the USD 25 of foreign tax credit to reduce your Indian tax liability.
Investing in the US markets is more stable when compared to the Indian stock markets in the long run. It also helps in reducing the risk of volatile markets as the portfolio is diverse and different since the risk is spread over a more varied range of segments and depends on the economic factors of multiple economies.
The US dollar is one of the strongest and stable currencies in the world which rarely fluctuates in value as was clearly showcased when it was able to sustain a major Coronavirus pandemic. The Indian rupee has only weakened against the dollar over the past decades. Thus, investing in US stocks with careful investments helps in taking advantage of this fact.
In conclusion, cautious investing in the US Stock market is advantageous as it provides access to international markets, better liquidity, higher market capitalization, stable currency and diversification. The US stock market is host to a variety of promising companies to choose from and is one of the most stable markets when it comes to safe and long term investments.
Indians can invest in the US stock markets by directly opening a US brokerage account or through US-focused international mutual funds in India. While Indians come out of the home country biased and turn towards diversifying their portfolios, the US stock markets offer a clear and precise look into what opportunities await for them.