FAQs on US equity investing
1. What are some of the rules for Indians to invest in US equity?
As per the rules of Reserve Bank of India (RBI), under Liberalised Remittance Scheme (LRS), any Indian resident may invest up to US $2,50,000 per year in global equity markets including the US. Resident Indians may invest in direct equity by routing their investments through an international broking account into the US market, invest indirectly in India-based mutual funds; which in turn, invest in US-focussed mutual funds, or globally listed exchange-traded funds (ETFs), which are listed in US stock exchanges.
2. Why are US equity markets, an attractive investment?
US equity markets have delivered excellent returns in the decade that began in 2010. The large-cap US S&P 500 has delivered returns of over 13.5 per cent between 2010 and 2020. The advantage of investing in US stocks is that their returns are dollar-denominated. For an India-based investor, the rupee has also depreciated over the period of 2010 to 2020 by around 40 per cent from a level of Rs 45.5 per USD to Rs 72 per USD in 2020. Over a 10-year period, this has added an average of over 3 per cent per year for an Indian investor. The US stock market also allows investors to participate in the growth story of leading global technology giants such as Apple, Alphabet (the Google tracking stock), Amazon, Facebook, etc.
3. What are special purpose acquisition companies (SPACs) and should Indians consider investing in them?
Special purpose acquisition companies (SPACs) are the companies that issue capital in the stock market with the specific objective of raising money and in turn, invest in operating companies. These operating companies are usually merged with the SPAC. SPACs are considered to be speculative investments and investors should be careful about investing in them. However, if a SPAC has been created without yet identifying the target company and is therefore available at an inexpensive valuation, a SPAC might then be considered a useful investment.
4. What kind of investments could an Indian investor make in US equity?
To participate in the growth of the large-cap, technology-dominated S&P 500 index, Indian investors can invest in an index product (either a fund or ETF) that tracks S&P 500 index. An investor can also invest in an ETF that tracks S&P 500 growth index to increase his/her allocation to the growth stocks in the US market. Investors, with a contrarian view, can invest in an ETF that tracks S&P Value Index to benefit from growth in the value stock universe. Apart from this, investors can also explore ETFs that track high-growth and innovative companies such as Ark ETFs for a small allocation for the long term. Investors should only consider a small commitment to this kind of investment as it has more volatility than main-line indices.