Indian investors are looking to invest in international markets for earning a higher return on their investments. In fact, the S&P 500 index increased by over 200% in the past 10 years, while the S&P BSE Sensex nearly doubled during this period.
The primary Wall Street indices – Dow Jones (DJI), Nasdaq (IXIC), and the S&P 500 (GSPC), too have doubled the returns for investors in the past five years.
Since mutual funds (MFs) investments (SIP or lumpsum) are made with a long-term perspective, the returns are even better than the equities.
While a few investors look to global markets for its attractive returns, many investors mainly look for portfolio diversification. The high returns are witnessed not just in equities but also in mutual funds.
Let’s understand how to invest in US stocks via mutual funds.
Currently there is only one way to invest in US stocks via Indian mutual funds. Individuals can make investments in US stocks by opting for US-focused international mutual funds. These are mostly overseas FoFs (fund of funds) or other international mutual funds.
An international mutual fund is a scheme that predominantly invests in equity or equity-related instruments of entities listed in the markets of a foreign country. It also invests in debt securities.
Prospective investors should note that US-focused international mutual funds provide the benefit of diversification.
International diversification can be beneficial (in terms of high returns) and risky. It is risky in cases when you do not understand their market, rules and regulations, factors affecting their markets and economy and other geography-specific factors.
Mutual funds that invest in US markets cornered the maximum flows in the initial six months of FY2021 as per various media reports.
The table below is an example of a few US-focused mutual funds and highlights their performance based on trailing returns.
|Mutual Fund||Returns (approximate figures)||Asset
|3 Years||5 Years||Year-to-Date|
|ICICI Prudential US Bluechip Equity Fund||17.74%||19.01%||18.50%||ICICI Prudential Mutual Fund|
|Nippon India US Equity Opportunities Fund||18.41%||19.49%||18.92%||Nippon India Mutual Fund|
|Motilal Oswal NASDAQ 100 ETF||27.23%||28.19%||20.19%||Motilal Oswal Mutual Fund|
Data as of 28 September 2021, source – Value Research
Any investor planning to venture into the global investing landscape, especially in US markets, can invest in these mutual funds. That said, investing in international MFs is suitable for individuals with the following objectives:
According to some experts American companies, such as Netflix, Amazon, Facebook, Microsoft, could be well-positioned to handle any disruptions in the global economy.
However, no investment should be considered completely risk-free. A tech slowdown in the US can hamper investments in such big stocks as well.
Typically, international mutual funds are well-suited for investors with a long-term investment horizon and higher risk appetite.
Moreover, they should be comfortable with the associated risks of investing in these MFs.
Investing in these mutual funds involves a few minimal risks:
International mutual funds are taxed like any other MFs in India: