Investing in US ETFs from India is not only lucrative but also a highly popular option. As per the ETFGI May 2022 report, The global ETF market had net inflows of $80.28 billion in May, increasing the annual total to $417.87 billion. From the end of April to the end of May, the global assets in the ETFs sector climbed by 1.0 %, from $9.36 trillion to $9.46 trillion.
While maintaining your asset diversification across various trending sectors on the US stock market, you can also benefit from investing in US exchange-traded funds (ETFs). For any Indian investor, having a diverse foreign portfolio has a number of benefits. To reap the benefits of US ETFs, learning how to invest in US ETFs from India may be a good starting point.
The financial markets across nations have seen an impeccable rally since the pandemic lows until the correction started in the final quarter of 2021. Investors have gained hefty returns from stock market investments, from lows to all-time highs. However, amateur investors who only invested in the cash market rode the trend so far with joy until the correction began. Now that news about inflation reaching a 40-year high and geopolitical tensions between Russia and Ukraine are doing the rounds, investors are switching to diversification. The US ETFs are a great option for investors aiming to mitigate risk to their portfolios.
The US ETFs received record inflows in 2021 and if you’re wondering how to invest in US ETFs from India, then worry not! We’ve got you covered in this blog. But before we begin with that, let’s understand what ETFs are.
Understanding Exchange Traded Funds (ETFs)
As the name suggests, ETFs are funds that can be freely traded on the stock exchange, just like stocks. This financial instrument was developed keeping in mind the diversity of mutual funds and liquidity of stocks; hence, it is considered an asset class that offers the best of both worlds. The price of ETFs changes throughout the trading session, similar to shares, allowing an investor to freely buy or sell at any time during normal trading hours.
An ETF can invest in many kinds of underlying assets, such as stocks, bonds, commodities, or a mix of all of the aforementioned. An ETF can either hold shares of hundreds of diversified companies or hold a few shares from one particular sector or industry. Based on the investment in underlying assets, the US ETFs are divided into two categories – Passive ETFs and Active ETFs.
Passive US ETFs
Rather than trying to chase returns higher than the benchmark, passive ETFs merely try to replicate the return of broader indexes such as the S&P 500 or the returns of a specific sector or industry. Recent trends indicate that a higher number of investors in the United States are moving towards passively managed funds.
Active US ETFs
In the case of actively managed ETFs, the fund managers are involved in actively buying and selling investments within the fund with the intention to outperform the benchmark index. These ETFs are considered slightly riskier compared to the passively managed funds and thereby offer a higher return.
What are the different types of ETFs?
- Index ETF
The majority of ETFs aim to replicate an index’s performance. Indexes may be divided into two broad categories: those that monitor the market and imitate indices akin to the S&P 500 Index and those that track a much more specialised area of the market, such as companies, according to their market capitalisation small-cap stocks or large-cap ones. After expenses, an index-based ETF aims to attain the market return or the return of a market sector it wants to replicate. While index ETFs frequently and closely track the underlying index, the returns do not entirely mirror the index due to a gap between the market price of the ETF and its net asset value.
- International ETFs
Your equity holdings might be more diversified through international investing. The ideal choice for a more passive approach is a global equities fund with exposure to several different foreign securities or a nation-specific index. A single-market ETF can be a bit risky if that particular market crashes or faces a recession. Hence, having ETFs that have investments in multiple nations is a safer bet.
- Sector ETFs
These ETFs solely invest in the equities or securities of a particular sector. The sector or industry that the ETF invests in is typically mentioned in the ETF’s name. Instead of purchasing the stocks of individual firms in a sector, an investor can consider gaining exposure to sectors by investing in such ETFs. For example, Vanguard Information Technology ETF aims to follow the progress of a benchmark index that calculates the investment return of equities in the IT industry.
- Thematic ETFs
Despite their apparent similarities, sector and thematic exchange-traded funds (ETFs) are not the same. Thematic ETFs focus on a general concept rather than a specific industry, such as disruptive technology, climate change, etc. Thematic investing is a proactive method of investing with the goal of capitalising on long-term structural changes and megatrends. Thematic investing places a greater emphasis on structural than cyclical concerns. Structural themes, such as the push for clean energy, occur over a much longer period of time than cyclical themes and frequently contain one-off events that irrevocably change the course of history. Cyclical themes take place throughout the short to medium term. For example, the First Trust Nasdaq Cybersecurity ETF (CIBR) follows a liquidity-weighted index focusing on cybersecurity businesses.
- Dividend ETFs
These ETFs own shares of several businesses that pay dividends. In other words, they invest in businesses that pay out substantial dividends. In addition to long-term profits, dividend ETFs can generate a steady flow of income. It is important to note that, unlike bond coupon payments, these dividends may not be guaranteed. You have the choice to buy a basket of dividend-paying shares through dividend ETFs rather than buying each one separately.
Popular US ETFs and their performance
Some of the US’s largest and most popular ETF providers are Blackrock Financial Management, Vanguard, State Street Global Advisors, Invesco, JP Morgan Chase, etc. Let’s look at the statistical data of the top 10 widely traded US ETFs, their asset under management (AUM), and average daily volume.
|Name||AUM||Avg Daily Share Volume (3mo)|
|SPDR S&P 500 ETF Trust||$361,774,000.00||9,83,20,195|
|iShares Core S&P 500 ETF||$296,229,000.00||66,15,432|
|Vanguard S&P 500 ETF||$261,453,000.00||59,75,568|
|Vanguard Total Stock Market ETF||$260,767,000.00||48,95,010|
|Invesco QQQ Trust||$170,236,000.00||7,63,36,805|
|Vanguard Value ETF||$96,871,700.00||31,87,984|
|Vanguard FTSE Developed Markets ETF||$93,908,800.00||2,07,94,512|
|iShares Core MSCI EAFE ETF||$86,133,900.00||1,58,38,873|
|iShares Core US Aggregate Bond ETF||$81,849,500.00||84,31,719|
|Vanguard Total Bond Market ETF||$81,524,600.00||71,72,956|
|Vanguard Growth ETF||$74,456,800.00||14,72,552|
(Source: ETF Database)
The data provided above has been curated from the ETF database and indicates the figures as of 25th July, 2022.
How to invest in a US ETF from India?
Investing in US ETFs from India is permitted as the Reserve Bank of India (RBI) allows Indian investors to invest in US stocks and funds under the Liberalized Remittance Scheme (LRS). Initially, Indians wishing to invest or send money to the US were required to take permission from the RBI, which was a cumbersome process. But in 2004, the RBI launched the LRS, which allows individuals to send money without any obstacles. Since the launch of this scheme, US stock markets have attracted an increased number of Indian investors who are looking for superior returns.
So how do you invest in US ETFs? Well, one way to invest in the US ETFs is through an indirect mode whereby you can invest in an Indian fund that, in turn, invests in the US stock market. But a simpler way to do so is to directly open a US brokerage account with Stockal, which offers a unique investment platform with no account minimums. There is no lower limit on how much you can invest, and the brokerage charges are reasonable too. You can simply decide the amount you want to invest and buy or sell the ETFs. With Stockal’s global investing account, LRS compliance is made extremely easy. You can complete your e-KYC procedure with a few simple clicks and become India’s US stock market investor.
How to invest in US ETFs from India?
Until now, we have understood the ETFs and the different types of ETFs. We know it is possible to invest directly in US ETFs from India, but how? Let’s find out:
- Open a Demat Account with an Indian broker partnered with a foreign broker or foreign broker itself or investment apps:
You can invest directly in US equities through domestic brokers’ partnerships with US brokers. Online platforms like Stockal are among these choices. Alternatively, you can create a trading account directly with a US-based broker.
- Invest in ETFs traded on the US stock exchange
You may enhance your exposure to US stocks by investing in ETFs directly. Either you can invest in US ETFs from India, given your risk and investor profile directly through a domestic or international broker, or you may purchase US ETFs, or you can purchase an Indian ETF of a worldwide index.
- Buy curated ETFs from the Stockal App
Investors of Stockal have the choice to invest in pre-configured stacks of stocks and ETFs, which can be purchased with only one click. To solve the “what to invest” conundrum, Stockal provides curated pre-made portfolios structured around a certain idea or subject. Renowned financial experts developed each stack to accommodate varied investment strategies, risk appetites, and investment goals. You can consider investing according to themes and sectors also, such as the Electric Vehicle Portfolio, which invests in firms involved in the development of electric vehicle (EV) technology, autonomous vehicles, batteries, and other EV parts.
Is investing in US ETFs beneficial?
Investing in US ETFs from India comes with the added advantage of diversification as well as flexibility. Here are some of the benefits of investing in this asset class over other investment types.
- Affordable: ETFs are more cost-efficient than mutual funds. These instruments’ lower expenses and long-term advantages make them very affordable and an excellent choice for investors.
- Low Risk: Since an investment in most exchange-traded funds is passively managed, they are considered less risky. Focusing on investing only in the best stocks within the index reduces the probability of higher risks.
- Flexible: You can buy and sell the US ETFs at any time during the normal trading hours of the American stock markets. As and when your target is achieved, you can simply place and sell orders and liquidate your investment.
- Diversification: Since multiple underlying assets are involved in the ETFs, the risk of one particular asset is absorbed by the other, thereby reducing the risk and optimising the returns. However, it is important to note that the risk is not completely mitigated with diversification.
To sum it up
For global investors, investing in US ETFs is a good way to diversify their investment portfolio. With larger sums switching towards passively managed exchange-traded funds, you can invest in the American stock market through this route and optimise your investment portfolio. Stockal provides a highly useful and intuitive global investment platform that will be your smart companion as it offers world-class research. Download the Stockal app from iOS App Store or Google Play store to begin your global investing journey.
To learn more, you can visit Stockal’s website.