How to Diversify Your Portfolio by Investing in US Stocks from India

How to Diversify Your Portfolio by Investing in US Stocks from India

From Anny David

How to Diversify Your Portfolio by Investing in US Stocks from India

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What is diversification and why should you diversify?

While you are reading up on how to invest in US stocks from India, remember that spreading your investments out will limit your exposure to any one form of asset. This approach is known as diversification. This routine is intended to lessen the volatility of the portfolio gradually. Among the keys to a successful investment is how to strike a balance between your degree of comfort with risk and your time horizon. If you invest your retirement savings too cautiously when you're young, you face the danger of your investments' growth not outpacing inflation. 

The opposite is also true: if you invest too vigorously as you get older, you risk leaving your funds vulnerable to market fluctuations, which could depreciate your assets when you have fewer opportunities to make up for your losses. Diversifying your assets is one method for achieving risk-reward balance in your investing portfolio. Although this technique has undergone numerous sophisticated variations, its core concept remains the same: diversifying your portfolio across various asset types. Diversification might potentially lessen the quantity and intensity of nauseating ups and downs by minimizing volatility and risk in your portfolio. Always keep in mind that diversification does not guarantee a profit or protect against loss.

It doesn't necessarily aim to improve performance because it can't guarantee gains or protect against losses. However, diversification has the ability to reduce risk for the growth you decide to pursue.

  • You should search for investments—cash, bonds, stocks, or other—whose returns historically haven't moved in a similar direction and to the same degree if you want to create a diverse portfolio. By doing this, even if a piece of the portfolio is losing value, the remainder is much more likely to rise or at the very least not losing value as quickly.

  • A well-diversified portfolio should also make an effort to maintain a balance within each investment category. It would be wise to diversify across companies according to market capitalization (small, mid, and big caps), industries, and regions. 

  • Again, not all market capitalizations, industries, and geographic areas have seen growth simultaneously or to the same extent, so you might be able to lower portfolio risk by distributing your assets over several stock market segments. A combination of styles, like growth and value, can also be something to think about.

Why should you look at US markets for diversification?

While figuring out how to invest in US stocks from India, note that building riches through the stock market takes time and requires great patience. As external factors also come into play, stock prices may fluctuate over time and may or may not be influenced by internal corporate issues. However, if the stock has the ability to create value for the shareholders, the company's core strengths emerge. Finding such stocks can be difficult, and sometimes even then, you must diversify across industries and regions. 

If your portfolio exclusively contains domestic companies, you must diversify as a trader in Indian equities. Cross-border diversification adds a crucial component for risk adjustment to any portfolio. There won't be a strong correlation between any two global economies. Thus, the effect on the stock market would also vary. Over a longer period of time, the overall impact of geographic diversification becomes apparent.

An answer to foreign portfolio diversification is to include US stocks in the holdings. For Indian investors who seek to diversify their portfolios geographically, the US stock market offers some of the best investing opportunities. There are many investment options available to Indian investors who want to know in detail on how to invest in US stocks from India, ranging from purchasing ETF units to buying individual US stocks. 

Perhaps it's time to watch the stocks and sectors once more, considering that the US stock market is currently on the verge of entering a bear market. You can benefit from the benefits of global diversification and the possibility of high-risk-adjusted returns by adding US stocks to your portfolio.

Over the previous ten years, US-based businesses have raised their share of the worldwide market to around 70%. According to a PWC study named "Global Top 100 Companies by Market Capitalization 2022," 63 of the top 100 global firms have their headquarters in the US. The most inventive businesses in the world are based in the U.S., and they list on American stock exchanges to raise capital. 

Additionally, the USD has rallied by around 20% over the past year compared to the Euro as well as other significant currencies. The US offers a unique investment opportunity for burgeoning industries, including EV, AI, etc. The United States is home to some of the most successful unicorns (a privately held start-up company valued at over $1 billion is referred to as a unicorn company). 

Check this out: The US accounted for more than half (53.7%) of the 100 best unicorns with a $1 billion or greater valuation as of March 31, 2022. There have been 1170 unicorns in the world as of March 31, 2022. This must have encouraged you to learn how to invest in US stocks. 

How to invest in US Stocks from India? 

1. Direct Beneficial Ownership 

  • Via Investment Apps: The user interface of investment apps is simple, and they also make fractional investing and capital transfers simple. With more people choosing to handle their money primarily through tablets or smartphones, the emergence of investment applications has coincided with changes in customer preferences. By concentrating on enhancing their mobile app experiences, stock trading and Robo-advisor companies such as Stockal have embraced this transformation.

  • Via brokerage accounts: An investment account utilizing buy and sell securities, including stocks, bonds, mutual funds, and ETFs, is known as a brokerage account. You can open an account with many authorized brokerage companies, ranging from more expensive full-service stockbrokers to affordable internet bargain brokers. You can make investments via an Indian or foreign broker. Another alternative would be the NSE IFSC - the sole wholly owned subsidiary of the National Stock Exchange. This NSE subsidiary operates global stock exchanges in Gandhinagar's GIFT City for the convenience of NRIs and overseas investors interested in trading Indian stocks.

2. Fractional and Indirect (Index-based) / Thematic Ownership

  • ETF 

A fund replicating the portfolio and performances of a publicly available Index is called an Exchange Traded Fund (ETF), and it trades on an exchange exactly like a stock. ETFs provide a low-cost investment option. ETFs have a significantly lower expense ratio than mutual funds. ETF fee ratios may be as minimal as 0.25%, compared to mutual fund expense ratios, typically between 1.5% and 2.25%. Stockal, for example, offers you the Global ETF Portfolio, an ETF stack made up of equity index-only ETFs spread across the US and international equity markets. The Stack provides extensive, diverse exposure to the US and international equity markets, including those in Europe, the BRICs, and emerging and frontier markets.

  • Stock Baskets 

A basket is a collection of securities (including stocks, currencies, etc.) tied to one another or satisfying certain criteria. For instance, a sector exchange-traded fund can have a collection of businesses from the same sector. Using basket orders, several trades in these assets are carried out concurrently. 

Occasionally, a piece of software is required to conduct all the trades at once. Owing to the programme element, baskets are typically a component of programme trading approaches. Institutional traders, exchange-traded funds, hedge funds, and mutual funds use them to swiftly and efficiently adjust the allocation of their portfolios. 

The majority of retail brokers also permit customers to place basket orders. While you are finding out on how to invest in US stocks from India via stock baskets, note that the Stockal Blue Chip Tech Stack is a great example. 

Making your investment journey smoother via investment apps like Stockal

  • Advantages vs. NSE IFSC 

The following are the benefits of investing on STOCKAL instead of NSE-IFSC:

  • Since it began operating in 2019, Stockal has amassed over 220,000 registered members who actively trade on American stock exchanges. Stockal enables trading in more than 5,500 equities and ETFs, as opposed to the 50 stocks that the NSE IFSC has suggested. Exchange-Traded Funds Traded funds are a class of pooled investment vehicles that frequently follow an industry, index, or commodity and then are traded on an exchange as conventional stocks.

  • Stacks are expertly selected pre-built portfolios on certain themes created by professional portfolio and global hedge fund managers. Through collaborations with well-known players, including Global X, Omniscience, and AlphaNiti, to name a few, Stockal provides stacks on its platform. 

Another option is to invest in Stockal's Disruptors Portfolio stack, which gives access to popular topics, including e-commerce, cloud computing, fintech, and cybersecurity, to mention a few. Stacks have a $1,000 minimum investment requirement and a CAGR of between 25 and 50%, constantly producing significant returns.

  • When prospective investor purchases share through Stockal, they end up with actual firm stock. They will possess UDRs of that stock, which the corporation does not sponsor, if they choose the NSE-IFSC method. Actually, the shares will be held on account of Indian investors purchasing UDRs by the US partner bank of the NSE-IFSC. As a result, while using Stockal to purchase and own actual stocks, investors who invest in US stocks from India will have the same voting rights and dividends as regular shareholders.

  • Stockal seeks to democratize international investing by streamlining and reducing the cost of the process. If a stock seems to be exceedingly expensive, one can invest less money to purchase a fractional share without any set ratio. One should not worry about the number of shares to purchase while investing in dollars. Investors just choose their investment amount and receive shares equal to that sum. 

On Stockal, you can purchase shares even worth $1 of a corporation selling at roughly $100 per share. However, in the case of NSE-IFSC, each share of a firm is divided into UDRs according to a ratio predetermined by NSE and periodically reviewed. 

For instance, 200 IFSC receipts with a worth of approximately $15 each will be created from 200 shares of Amazon stock with a share price of $2,900. However, we are unsure about how the decimal figures would function in this situation because even a small adjustment could affect returns. Investors who invest in US stocks from India directly through Stockal receive fractions up to the eighth decimal place in quantity and the second decimal place in price.

  • Investors from India trade directly through Stockal's U.S. broker partner, DriveWealth, with a trading account from Stockal. An account on Stockal can be created for free and quickly (15 minutes). However, investors must create a separate Demat account with one of the NSE-IFSC registered brokers to trade through the NSE-IFSC. 

Investors who invest in US stocks from India are not permitted to use their current Demat accounts, which are used for trading Indian stocks. To ensure that Indian investors are being taxed only in India and not the United States, they must complete the US W-8BEN and KYC forms with NSE IFSC.

  • Trading with Stockal only involves fees for brokerage and currency exchange. While trading via NSE-IFSC, one must also pay receipt issuance fees, Demat account fees, custodian fees, etc.

  • Unlike the 3-day settlement lag needed by NSE-IFSC, stocks purchased on Stockal will be promptly added to your account. Additionally, the funds received from equities sold through NSE-IFSC will also be credited after three days. Investors on Stockal now have access to liquidity and cost discovery comparable to U.S. exchanges.

  • The minimum waiting period for long-term capital gains on Stockal transactions is only 24 months because of how taxation is handled for foreign securities. However, proceeds from transactions made through the NSE-IFSC must be retained for 36 months to qualify for long-term capital gains.

Here is a table that draws a comparison between STOCKAL and NSE-IFSC:

Curated portfolio stacks

It takes a lot of work and research to ensure a portfolio is profitable and broad. Stockal takes care of that for you using Stacks. Stacks are skillfully curated portfolios that allow you to invest in US stocks from India with a single click. They comprise pre-configured baskets of stocks, Exchange Traded Funds or ETFs, as well as other securities. Stockal also offers features for research, such as Tipranks, to enable a better understanding of investing.

  • Thematic ETFs

An ETF known as a thematic ETF allows investors who invest in US stocks from India to make investments based on a specific issue, such as artificial intelligence or climate change. The ETF then contains businesses that ought to profit from that development. Stockal offers you thematic ETFs such as the Cosmos Thematic High Impact stack. These ETFs are built on structural growth and follow proprietary macro research.

  • Easy money transfer process and easy to track

Stockal money transfers come with instantaneous liquidity when you invest in US stocks from India. There are no restrictions on the amount you can send or pay. You can pay university fees, send money to friends and family. With Stockal, manage your money more wisely during your move by setting aside funds in US dollars to prevent currency exchange shocks.

5 Things to watch out for before investing in US stocks from India

The US stock market is one of the finest possibilities for portfolio diversification across geographies. Numerous leading technological corporations as well as other prosperous businesses with promising investment opportunities, are based in the country. The low connection between the Indian and US equity markets is also a favourable perspective. Here are some factors you need to look into and watch out for before investing in US stocks from India. 

  • Charges: When you transfer funds to your brokerage account, depending on your bank, there can be fees for transfers and Foreign exchange conversions. Due to the numerous fund transfers and transactions associated with frequent trading, there may be additional fees. Additionally, it will result in additional remittances and currency exchange fees.

  • Taxes: To make your efforts worthwhile, it is crucial to take into account the tax implications of your international assets. A double tax avoidance agreement, also known as the DTAA, between the US and India forbids taxing the same income more than once.

  • Investment Limits: A person is only permitted to send the LRS a total of US$250,000 USD each year for investments.

  • Foreign exchange impact: The fluctuation in exchange rates is a critical issue to consider while investing in the US market. The rupee has lost value versus the US dollar on average by 3-5 percent in recent years. When you participate in the US market, you do so at the risk of investing in the US Dollar. Your portfolio's worth increases when the value of the US dollar rises, and vice versa.

  • Your life goals: Your investing plan should include your life goals. Your investments ought to be able to assist you in achieving your goals, including moving abroad to study or work. For instance, your investment strategy should match your goals if you intend on saving up to $60,000 for your child's study abroad. The diversification objectives, where you might desire exposure to commodity or gold ETFs, may require this to be separate.

The Bottom Line

Your international investment journey is safe, easy, and secure with Stockal. It provides you with limitless options, top-notch research, effective price discovery and liquidity, as well as regular feature improvements, ensuring a seamless trading experience. Diversification of your portfolio would require you to do your research, and decide accordingly as per your goals and/or targets. By investing in US stocks from India via Stockal, you will have several options to choose from, thus diversifying your portfolio.

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