Introduction to Investing in International Markets
Every investor aims to diversify their portfolio by investing in a variety of assets. For Indian investors, opportunities to invest in international markets have become an attractive proposition, particularly the US stock market, wherein popular technology and consumer goods stocks have attracted considerable attention. Despite the geographical distance and market difference, investing in US stocks from India has been simplified due to advancements in technology.
Understanding Stock Market Terminology
Before venturing into buying stocks of US companies, understanding the technical terms associated with the stock market becomes crucial. One such significant term is the ‘face value of a share’. Though it might sound complicated, the concept is quite straightforward.
Face Value of a Share
The face value of a share, also known as par value or nominal value, is the price at which the company initially offers its shares to the public. For instance, if a company sets the face value of its shares at INR 10 and issues 1000 shares, its share capital will be INR 10,000. However, while trading, the shares will fluctuate based on demand and supply factors and may be traded at a premium or a discount to its face value.
In order to invest in US stocks from India, there are several channels. Indian residents can invest directly through the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI), which allows remittance of money up to $250,000 per financial year. By opening an account with international brokerages such as Interactive Brokers, Charles Schwab International, or TD Ameritrade, Indian investors can buy US stock. Alternatively, they can invest indirectly through mutual funds or Exchange Traded Funds (ETFs) that invest in international markets.
Importance of Face Value in Investment
Understanding the face value of shares not only helps measure the share’s market worth but also plays a pivotal role in calculating dividends for the shareholders. It is noteworthy that dividends are paid as a percentage of the face value of a share. If the face value of a share is INR 10 and the dividend declared is 100%, a shareholder will receive INR 10 per share as a dividend.
Advantages of Investing in US Stocks
There are several advantages of investing in US stocks from India. First and foremost, it provides portfolio diversification and reduces the risk factor. Since the US and Indian economies do not always move together, when Indian stocks underperform due to certain regional or national issues, US stocks could potentially provide better returns. Further, US markets often provide exposure to sectors not available or under-represented in the Indian markets like technology and pharma.
Risks and Challenges of Investing in US Stocks
However, investing in US stocks from India does involve certain risks and challenges. For instance, the investor is exposed to currency risk. Since investments in US markets are done in dollars, any fluctuation in the INR-USD exchange rate could impact investment returns. Moreover, US laws on estate tax could be applicable on investments, which means that the legal heirs may have to pay estate tax in the event of the investor’s death.
Investing in US stocks from India may seem like a lucrative opportunity, but it requires in-depth understanding of international financial markets, the company’s performance and even prowess in comprehending the face value of share. Hence, the investors must exercise their judgment and vigilance in analyzing the ongoing market trends and understanding the mechanisms before stepping into foreign exchange trading.
Disclaimer:
This article aims to provide an understanding of the process of investing in US stocks from India. It should not, under any circumstances, be interpreted as an investment advice or a roadmap. The reader is advised to understand the risk factors, consult a certified financial advisor and make an informed decision based on their financial capacity and risk appetite before investing in US stocks.
