Investors in India and across the world are increasingly focusing on diversification as a result of inflation reaching a multi-year high and geopolitical tensions between Russia and Ukraine. For investors looking to reduce geographical concentration risk in their portfolios, U.S. ETFs are one of the most viable options.
If you’re wondering how to invest in U.S. ETFs from India, do read this blog.
What Are Exchange-Traded Funds (ETFs)?
ETFs are mutual funds that, as their name suggests, are listed on the stock market and can be freely traded on the stock market, just like stocks. This financial product was created with the aim of having the strengths of mutual funds (diversity) as well as those of stocks (liquidity); as a result, it is regarded as an asset class that provides the best of both worlds. Similar to shares, the price of ETFs fluctuates throughout the trading day, enabling investors to easily purchase or sell at any moment during regular trading hours.
An ETF may invest in a variety of underlying assets, including securities like stocks, bonds, commodities, or a combination of all three. An ETF may have a few shares from a single sector or business, or it may hold shares from hundreds of diverse companies. The U.S. ETFs are split into two categories: passive ETFs and active ETFs, based on the investment strategy employed by the fund managers.
U.S. Passive ETFs
Passive ETFs only seek to mimic the returns of larger indices like the S&P 500 or the returns of a particular sector or industry, rather than seeking returns that are higher than the benchmark. Vanguard Total Stock Market ETF, Vanguard Long-Term Corporate Bond ETF, and Ark Innovation EtF are a few of the most know U.S. ETFs that you may explore investing in. Recent developments suggest that more American investors are switching to passively managed funds.
Active U.S. ETFs
When it comes to actively managed ETFs, the fund managers actively buy and sell securities inside the fund with the goal of outperforming the benchmark index. These ETFs may provide a higher return because they invest using strategies that are riskier than passively managed funds.
Performance of well-known U.S. ETFs
Some of the top performing US ETFs based on their 3-year Compound Annual Growth Rate (CAGR) are as follows (as on July 20, 2022):
| S. No. | US ETF | 3 Year CAGR |
| 1. | Global X Lithium & Battery Tech ETF | 40.57% |
| 2. | VanEck Vectors Rare Earth/Strategic Metal ETF | 27.7% |
| 3. | iShares Morningstar Large-Cap Growth ETF | 25.34% |
| 4. | S&P Semiconductor SPDR ETF | 23.65% |
| 5. | Global X Uranium ETF | 23.44% |
You can check out the top performing US ETFs as of today by visiting Kuvera website.
How Can An Indian investor Buy a U.S. ETF?
Since the Reserve Bank of India (RBI) permits Indian investors to purchase American stocks and mutual funds under the Liberalized Remittance Scheme, buying U.S. ETFs from India is legal (LRS). Initially, Indians wishing to send money or make investments in the United States had to obtain clearance from the RBI, which was again a lengthy procedure. However, the RBI introduced the LRS in 2004, allowing people to send money without any restrictions. Since the introduction of this programme, American stock markets have drawn more Indian investors seeking out higher returns.
So how do you buy American ETFs? You can invest in an Indian fund that, in turn, makes investments in the American stock market as a way to indirectly invest in U.S. ETFs. However, there is a quicker and easier way to do this: just open a U.S. brokerage account with Kuvera US Stocks (in partnership with Vested), which provides a distinctive investment platform with no account maintenance charges. You can invest an unlimited amount, and the brokerage fees are nil for both sales and purchases of ETFs. Simply choose your investment amount and buy or sell the ETFs. You can finish your e-KYC process and register as an investor in the U.S. stock market from India with a few easy clicks.
Is Buying American ETFs Profitable?
Diversification is a major benefit of investing in U.S. ETFs from India. Since US ETFs include several underlying assets situated in the United States of America, there is a high likelihood that your investment will be more or less immune from geopolitical factors affecting India. Diversification does not entirely reduce risk in your portfolio, but it reduces it to a great degree.
Conclusion
A solid strategy for risk reduction is to geographically diversify the investment portfolio by purchasing U.S. ETFs. An investor can invest in the American stock market this way and optimise his investing portfolio by shifting certain quantities of his savings to exchange-traded funds. Also, investors get an option to invest in ETFs which focus on different sectors of the economy, such as the oil sector, for example, ProShares Ultra Bloomberg Crude Oil.
Visit Kuvera’s website here to learn more.
