As an NRI flush with cash, you can opt for a diversification strategy on how to go about investing in the US securities market. The following are the basic tips on doing so.
a) How to Invest. There are ways to go about it, which are as follows:
- Do-It-Yourself. There are several e-trading services that allow overseas investors to invest in the US market without a US address. You do this by yourself, without any professional advice. Depending on the extent of your investment portfolio, this may not always be the best one for your needs.
- Full Service Brokerage. This involves engaging the services of a full service brokerage firm and this provides advisory services, custodial services and up to date reporting. This is essentially a one-stop shop for US investments for everyone.
b) What to Invest In. This depends mainly on the goals of the NRI investor. Thus when looking for regular income, it would be best to invest in fixed income securities. When one is interested in capital appreciation, it would be best to choose equity or lower quality fixed income investments.
c) What to Expect. A major factor here would be the type of investment done in the US financial markets. Another major factor would be tax impact, as this would cover both income tax and estate tax. The source would be the interest income and dividend income. As for taxes, there is capital gains tax and other earnings.
According to many experts such as PV Subramanyam, a Chartered Accountant and Financial Domain trainer, “For High Networth Investors with a liquid net worth of US$1 million, investing in India are limited, both because of the volatility as well as the lack of depth on the Indian market. They seek diversification and today, that can come from investing in global markets.”
Thus, the better option is investing in the US securities market. According to Tom Sowanick, current president of Omnivest Group LLC, an investment advisory firm from Princeton, New Jersey said, “There are three good reasons why an Indian investor should look at the US securities market today. First, he will get a higher real return because of lower inflation in the US. Second, he will be investing in a stable currency. Let me give you an example. Ever since the financial crisis of 2008, the BSE Sensex has fallen over 60% while the S&P Index has lost about 55%. But at the same time, the dollar has appreciated by over 30% as compared to the rupee. So while an investor would seemingly have lost equally had he invested in both indices, he would have lost a lot more on the Sensex due to the currency risk. The third reason is to diversify political and economic risk