Money making ideas in the US markets
Once you have decided that you are going to allocate 10% of your portfolio to international US equities, what are the next steps, If you want to invest in US stocks or if you want to invest indirectly in the US stock markets, there are a number of methods you can adopt .You can either adopt the direct route or the indirect route.
US market trading is something you can do sitting here in India. You can either open a broking account directly with a global broker having an office in India or through one of the Indian brokers facilitating such transactions. The American stock exchange share prices are considered to be a lot more efficiently priced, although volatility is a part and parcel of that market also.
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Different ways to invest and make money in the US markets
Broadly, you can either adopt the direct route or the indirect route to invest in the global US markets. There are five different methods for you to participate in global markets.
- The first option is to directly trade in the US markets through a US registered broker with an office and presence in India. For instance, there are brokers like Interactive Brokers and other big global names that facilitate such transactions. You can either approach their India office, or you can directly use their app on the website. Some of these international retail brokers offering this facility include TD Ameritrade, Charles Schwab, E-Trade, Fidelity Investments etc. However, this entails higher costs and also higher upfront deposits and margin money for global trading.
- The second method to participate in the US markets is through an Indian broker offering access to international US markets through their tie-ups with global brokers. Most of the leading broking houses offer this facility wherein you can place orders on US stocks through the existing trading interface itself. It becomes a lot simpler for the trader or investor since they continue to operate from familiar territory. While costs are lower than in the first option, the commission are higher than normal domestic trade since the forex risk and other administrative charges are also recovered.
- Mutual funds offer the facility of fund of funds (FOF) normally in conjunction with their partners. For instance, when DSP had an association with Blackrock, they used to offer the Blackrock Nasdaq fund to Indian investors through the FOF route. It is a much simpler way of participating in the global markets through the indirect route so that the risk of stock selection is not there. FOFs of international funds take longer to redeem. While the normal redemption process takes 2-3 days for domestic funds, it takes about 6 days for international FOFs. The domestic funds act as feeder funds for global funds.
- Another method of investing indirectly is to directly buy mutual funds or exchange traded funds in the global market. These can be managed through the global broking accounting itself so that there is no additional administrative hassle for you. ETFs are passive funds and are either benchmarked to the index or to commodities like gold and silver. Index ETFs can be linked to equity indices or to bond indices. Effectively, it is quite simple to invest in these passive ETFs globally and the stock specific risk is also not there.
- There is a recent addition to the pantheon of products through which one can invest in the US markets. There are several apps that facilitate the purchase of shares, including fractional shares in the US market. They don’t go through the same circuitous route that normal broking accounts go through. You can swipe a card and start trading through these apps. However, these are always operating in the grey area of regulation and that poses a risk for you. Investors need to be cautious about using this option.
Let us summarize the key thoughts here. Firstly, the existing regulations allow investors to buy stocks, mutual funds, ETFs and FOFs in the US market sitting right here in India. However, whichever method you use, your total allocation in any year under the Liberalized Remittance Scheme (LRS) cannot cross $250,000.
A word of caution here. Like in India, even in the US, equities are a long term investment, so take a perspective of 3-5 years while investing. You could be disappointed with a very short term view of a few months in international equities.
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