Yes, it is possible to invest in US stocks or international markets through Mutual Funds. There are certain US-focused International Funds available for investors. These mutual fund schemes primarily invest in equity or related instruments in foreign markets. Some fund houses also focus on debt securities.
Investing in US Stocks: Strategies for Indian MF Investors
Understand the market and the industry before you invest. Although investing in US stocks will diversify your portfolio, the rewards bring with them a certain amount of risk. The risk could be a gap in your knowledge about the American stock market, rules and regulations, and the economic factors that move the industry. Next, understand what objectives the fund house is aiming to achieve. Finally, make sure you learn the historical performance of the mutual funds investing in US stocks as well as track their progress moving forward on your trading platform.
Who Should Invest in Foreign Mutual Funds?
Investors looking to diversify their portfolio beyond Indian instruments may explore international markets. A globally diversified portfolio helps in reducing the risk of your equity portfolio. Moreover, a global portfolio also hedges your risk against rupee depreciation. Mutual funds investing in US stocks also offer investors an opportunity to access leading multinational organisations like Amazon, Meta, Google, or Netflix. Above all, an investor looking for US mutual funds in India must have the risk appetite to be exposed to foreign market and exchange rate risks.
Risks of Investing in International Mutual Funds
Economic & Geopolitical:
Understanding the risks of domestic equity investment is fairly easier to understand. However, investing in international markets demands keeping up with the happenings in the respective countries and their economy. International trade, ties with other countries, changes in political power, and changes in rules and regulations of finance are some of the key factors affecting investments.
Currency:
The depreciation of foreign currency against the domestic rupee could lead to a dip in your portfolio. This is a dual-edged sword. An appreciation of foreign currency can lead to better returns too.
Tax Implications of International Mutual Funds
As international mutual funds do not invest in domestic equity, they cannot be classified as equity funds. For tax purposes, they are classified as debt funds. A long-term capital gain of 20% is applicable for investors committed to a fund for over 3 years. If an investor redeems an investment partially or completely before 3 years of being invested, then a short-term capital gain tax is applicable based on individual tax slabs. If the dividends cross Rs. 5000, resident investors are subjected to a TDS of 7.5%. It is important to understand the tax implications of investing in foreign markets before you dive in.
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