All ETFs

Why Invest in US Stocks via ETFs from India?

Investing in U.S. markets allows Indian investors to tap into the growth of some of the world’s biggest companies, which are leading the way in innovation, shaping industries like technology, healthcare, artificial intelligence, semiconductors, electric vehicles, and renewable energy. For example, Apple’s market value alone is over $3.2 trillion (as on March 22, 2025), which is more than the GDP of many countries!

US-listed ETFs make it easy to gain access to a wide range of global markets, providing diversification across economies and sectors that aren’t typically available in India. Plus, Indian investors can potentially benefit from favorable currency exchange rates when holding U.S. dollar-denominated assets. The dollar is one of the strongest and most stable currencies in the world. Over time, if the dollar strengthens, the value of your investments in USD could go up.

The US market also has a proven track record of long-term growth given that the market capitalisation of the S&P 500 index, which is a collection of the 500 largest US companies, has grown from around $18 trillion to over $35 trillion in the last 10 years. With investments in US Stocks, you can also enjoy this growth.

Adding US stocks to your portfolio also helps you spread your risk. Think of it as not putting all your eggs in one basket. While Indian stocks might give you high growth in certain sectors, the US balances that out with their global reach and stability. This mix can protect your investments if one market faces challenges.

How do US-based ETFs work?

An ETF gives you a snapshot of the overall performance of a group of companies rather than tracking each one individually.

An ETF is designed to follow or "track" an index, which is like a scoreboard for a specific set of companies. For example, the S&P 500 tracks the 500 largest companies in the US, such as Apple, Google, and Coca-Cola. Meanwhile, the Nasdaq-100 focuses on the top tech and innovation-driven companies like Broadcom and Netflix.

When you invest in an ETF that tracks one of these indices, you’re essentially investing in all the companies included in that index. If the index goes up, the value of your ETF goes up, and if it goes down, so does your ETF.

Think of the ETF as a mirror. If the S&P 500 goes up because Apple’s stock price rises, the ETF’s value reflects that. It doesn’t actively pick or choose stocks, it simply mirrors the performance of the entire index.

Tracking an index with an ETF saves you the hassle of buying individual stocks from all the companies in the index.

How Is the Market Price of an ETF Determined?

1. Net Asset Value (NAV): It is the starting point for determining an ETF’s price. NAV is essentially the total value of all the assets (like stocks or bonds) in the ETF divided by the number of shares.

For example: Imagine a fruit basket (ETF) filled with apples, oranges, and bananas (stocks). If the basket is worth ₹1,000 and there are 10 baskets (shares), the value of each basket is ₹100. That’s the NAV. NAV is calculated at the end of each trading day, giving a snapshot of what the ETF is worth based on its holdings.

2. Supply and Demand in the Market: Unlike mutual funds, ETFs trade on stock exchanges throughout the day, just like individual stocks. The price you see on the exchange can vary based on supply and demand. If demand is high because more people want to buy the ETF, the price might rise above the NAV. On the flip side, if demand is low because of fewer buyers, the price could drop below the NAV.

Think of it like concert tickets. If the artist is super popular (high demand), tickets might sell for more than their printed price. But if fewer people are interested (low demand), you might get them for less.

3. Bid-Ask Spread: It is the difference between the price buyers are willing to pay (bid) and the price sellers want to receive (ask). For ETFs with lots of buyers and sellers, the spread is usually very small. While for less popular ETFs, the spread can be wider, meaning you might pay slightly more to buy or sell. It is like negotiating at a vegetable market. A buyer offers ₹90 for tomatoes, but the seller wants ₹95. The final price might settle somewhere in between, depending on who compromises.

4. Premiums and Discounts to NAV: Sometimes, the market price of an ETF doesn’t exactly match its NAV. This creates a premium wherein the ETF trades for more than its NAV, or a discount wherein the ETF trades for less than its NAV. This happens because of temporary market conditions or investor sentiment.

To keep the ETF’s market price close to its NAV, authorized participants (APs) step in. These are large financial institutions that create or redeem ETF shares. You can think of APs like market supervisors. If the ETF price goes too high or too low compared to the NAV, they adjust the supply of units to bring prices back in line.

How do I choose the right US ETF?

Choosing the right US ETF depends on your financial goals, risk appetite, and investment timeline. Here are some ways that can help you decide which ETF to invest in.

• Define Your Goal: Identify what you want to achieve—growth, income, or diversification. For example, if you're seeking exposure to tech companies, ETFs like Invesco QQQ (tracking the Nasdaq-100) might be suitable.
• Understand the Index: Check which index the ETF tracks. For instance, an ETF tracking the S&P 500 provides exposure to 500 large-cap US companies.
• Check Expense Ratios: Look at the fund's costs. Lower expense ratios mean less money is deducted from your returns.
• Assess Liquidity: Highly traded ETFs usually have tighter bid-ask spreads, meaning you'll pay less to buy or sell.
• Consider Currency Risk: Investing in US ETFs exposes you to USD-INR fluctuations. Ensure this aligns with your risk tolerance.
• Research Past Performance: While past performance isn’t a guarantee, it gives an idea of how the ETF reacts to market conditions.
• Diversification: If you want broad exposure, you can consider ETFs like Vanguard Total Stock Market ETF (VTI), which includes large, mid, and small-cap stocks.

How to invest in US ETFs from India using INDMoney?

Step 1: Research the top ETFs that align with your investment goals and risk tolerance. Review their performance history, expense ratios, and holdings.

Step 2: Open an Indmoney account 

Step 3: Deposit funds into your Indmoney account and then select the ETF that you have researched. 

Step 4: Place your buy orders by entering the number of shares or the amount you want to invest.

Step 5: Monitor your investments regularly via INDmoney Investment Tracker and consider rebalancing your portfolio if needed.

What are the costs involved in US ETF Investments for Indians?

1. Brokerage Fees: When you directly invest in US ETFs, you do it through a broker, just like you would for Indian stocks. Brokers charge a fee, called brokerage, for helping you buy or sell ETFs. Different brokers have different fee structures. Some may charge per transaction, while others have flat rates, so it’s a good idea to compare before you choose one.
2. Currency Conversion Charges: Since US ETFs are priced in dollars, you need to convert your Indian rupees (INR) into US dollars (USD) to invest. Banks or brokers handle this conversion but charge a fee for it, usually as a percentage of the amount you’re converting.
3. Tax Implications: Earnings from US ETF investments, like dividends or profits from selling ETFs, are subject to taxes. India and the US have an agreement to avoid taxing you twice on the same income. If you’ve already paid taxes in the US, you can claim credit for it in India while filing your income tax returns.

Advantages of investing in US ETFs?

Diversity: An ETF gives you exposure to many companies at once, spreading out your risk. For example, an ETF tracking the Dow Jones Industrial Average index gives you exposure to top 30 “blue-chip” US stocks. This reduces risk because your money isn’t tied to the performance of just one stock. You can even choose to invest in ETFs of various asset classes, sectors, and themes

Lower Costs: Buying multiple stocks can cost a lot in brokerage fees, like paying for each ingredient in a recipe. ETFs, on the other hand, are like pre-packaged meals—they save you money because you’re buying a whole set of stocks in one go, often with lower fees.

Simplicity: Tracking individual stocks can be time-consuming and complicated as you need to give each stock time and attention. With ETFs, it is more hands-off. You are following an index like the S&P 500 or Nasdaq-100, which simplifies the process.

Easier to Start: If you don't know much about the US stock market, picking individual stocks can be overwhelming. ETFs are beginner-friendly. For example, instead of guessing whether Apple or Tesla will perform better, an ETF tracking the Nasdaq-100 lets you invest in both (and others) at the same time.

Liquidity: Unlike Mutual Funds, ETFs trade on the stock exchanges and can be bought and sold through the day. They have higher liquidity, meaning there’s less difference between the buying price (bid) and selling price (offer), so you get a fair deal.

Dividend Opportunities: US ETFs often include companies with a history of paying dividends. Adding these ETFs to your portfolio can provide a source of regular income through dividend payouts, enhancing your overall investment returns.

Tax Efficiency: ETFs are known for their tax efficiency, thanks to the unique structure that minimizes capital gains taxes.

Risks of investing in US ETFs?

No Big Wins: Imagine you are at a buffet. You get a taste of everything, but if there is a particularly amazing dish, you only get a small portion. That’s what happens with ETFs. You do not fully benefit if one company in the fund skyrockets because your investment is spread out across many stocks.

Limited Control: When you buy individual stocks, you can pick and choose based on what you like and what you want to avoid. With ETFs, you don’t control which companies are included. It is like getting a fixed combo meal where you take what is offered, even if you don’t love everything in it.

Still Tied to the Market: If the overall market or index an ETF tracks performs poorly, your ETF will likely follow suit. For instance, if you own an ETF tied to the S&P 500 and the index drops, your ETF value will also drop even if a few companies in the index are doing well.

Tracking Error: Some ETFs may not perfectly track their benchmark index due to factors like fees, trading costs, or cash drag. This tracking error can impact returns.

Lack of Active Management: Unlike actively managed funds, most ETFs passively track an index. While this can lead to lower fees, it means that there's no active manager making decisions to protect your investment during market downturns.

Tax implications of investing in US ETFs for Indian investors?

Tax on Dividends: If the US ETF you invest in pays dividends (a portion of profits shared with investors), these are taxed in the US. A flat 25% tax is deducted at the source by US authorities. Suppose your US ETF pays you ₹10,000 as dividends. ₹2,500 (25%) will be withheld, and you’ll receive ₹7,500 in your account.

Tax on Capital Gains: When you sell your US ETFs and make a profit (capital gains), you will need to pay tax in India based on how long you held the ETF. Short-term capital gains (STCG) apply if you have held them for less than a year, and long-term capital gains (LTCG) apply if you have held them for more than a year. After Budget 2024, STCG on equity investments is taxed at 20%, while LTCG arising from all types of capital assets is now taxed at 12.5%, with an exemption limit of Rs 1.25 lakh per financial year.

Double Taxation Avoidance Agreement (DTAA): India and the US have a treaty to prevent you from paying taxes twice on the same income. So, the tax you pay in the US (like the 25% on dividends) can be claimed as a credit when you file your taxes in India. For example: If your total tax liability in India is ₹30,000 and you’ve already paid ₹10,000 in US taxes, you only need to pay the remaining ₹20,000 in India.

Currency Conversion Impact: When calculating taxes on capital gains, you need to convert the buying and selling prices of the ETF into INR using the exchange rate on the respective dates. This can affect your gains if the rupee has weakened or strengthened. Suppose you bought an ETF for $1,000 when the exchange rate was ₹75/$, making your cost ₹75,000. If you sell it for $1,200 when the rate is ₹80/$, your proceeds in INR are ₹96,000. Gains are ₹21,000, not just the $200 difference

Investing in US ETFs offers Indian investors a unique opportunity to tap into the growth of some of the world’s biggest and most innovative companies. Every day, Indians interact with U.S.-based products, whether through Apple devices, social platforms like Instagram and WhatsApp, or entertainment giants like Netflix and Amazon Prime.

These companies, with their vast cash reserves and diversified revenue streams, represent a chance for Indian investors to be part of the wealth they generate.

The US remains at the forefront of emerging technologies. Companies like Nvidia, with its dominance in AI chips, and Tesla, which is revolutionizing the EV market, continue to drive innovation. Additionally, the US market is a key player in the global shift towards green energy, with companies like Rivian, and NextEra Energy leading the charge toward a cleaner future.

By investing in US ETFs, Indian investors can diversify their portfolios beyond domestic markets. The differing economic cycles in India and the US provide a hedge against local market volatility, allowing investors to capitalize on growth opportunities in both markets while managing risk effectively. This diversification, combined with access to revolutionary technology and green energy, makes US ETFs an attractive option for Indian investors looking to broaden their investment horizon.