Many investors question their investments’ worth as the rupee falls in value. Global investing, particularly in the American share market, may help to alleviate these concerns.
Similar to the BSE and NSE in India, stocks in the United States are traded on major exchanges such as the NASDAQ and the New York Stock Exchange (NYSE). Indices that track the stock market’s performance, such as the Dow Jones, can be found on these exchanges.
Before we understand how to invest in the American stock market, let us first understand the various indices of the American share market.
What are the various indices in the American share market?
A stock market index reflects how investors perceive an economy’s performance. An index collects information from various companies across industries. When these pieces of information are combined, they form a picture allowing investors to calculate market performance by comparing current and previous price levels.
So if you are getting into the market now and are highly curious about how to invest in the American stock market? – Investing in the securities listed on an index might be advantageous. As they represent a wide and varied range of the stock market. If you are curious to learn more about how to invest in the American stock market and want to enter it now, investing in listed securities on indices is advantageous, as indices represent the entire fabric of the American industry.
Indices vary in size, with certain monitoring only a few stocks and others observing large numbers. Every index has a specific purpose since different investors have diverse interests.
Some indices concentrate on a specific market segment. For example, suppose you wish to invest in US companies with the largest market capitalizations. In that case, you may track the S&P 500, as it tracks the 500 of the largest US companies based on their market capitalization.
To help you learn more about how to invest in American stocks from India, we have created a brief guide on the most popular American share market indices so that you can make a well-informed decision about what to add to your investment portfolio.
- S&P 500:
The S&P 500 is a stock market index that includes 500 of the largest publicly traded companies in the United States, which are chosen for the index primarily based on capitalization. The constituent committee also considers cash flow, public float, industry categorization, economic health, and market history.
Even though it only includes 500 US companies, their shares account for roughly 80% of the total market value. As a result, it is frequently used as a proxy for the overall stock market. When investors and analysts talk about the performance of “the stock market,” they frequently refer to the S&P 500.
The S&P is float-weighted, which means that the company’s market capitalizations are adjusted based on the number of shares available for public trading. It is also market-cap-weighted, meaning that larger companies are given more weight.
- The NASDAQ Composite:
The Nasdaq Composite Index is a stock market index containing all domestic and international common shares traded on the stock exchange. The Nasdaq was the first digital stock exchange and is home to many well-known technology companies.
The Nasdaq Composite Index has a lot of companies, but it is heavily weighted toward technology firms and it is frequently used as a proxy for the sector. Some smaller, more growth-oriented companies choose to list on the Nasdaq rather than the NYSE because it is easier to do so.
With subsectors such as software, biotech, semiconductors, and others included. It is evidently concentrated with tech stocks, but it also includes securities from other industries. Financials, industrials, insurance, and transportation stocks are among the securities available to investors.
Like the S&P 500, the Nasdaq Composite is market-cap-weighted, meaning that larger companies are weighted more heavily.
The Nasdaq 100 is another stock index that includes Nasdaq-listed companies. However, instead of including all of the exchange’s listed companies, it only includes the top 100. The Nasdaq 100 contains more technology stocks than the Nasdaq Composite.
- Dow Jones:
The Dow Jones Industrial Average, also known as The Dow, is the most well-known stock index. Charles Dow founded it in 1884 with just 12 stocks. The index now includes 30 large-cap blue chip stocks from the United States.
Blue-chip corporations are well-known and respected corporations with a long track record of outperformance in both up and down markets. They also pay dividends regularly.
These 30 companies were chosen as sector leaders in various economic sectors across the United States. The Dow Jones is meant to be more diverse across industries, but it only contains 30 companies.
Compared to the S&P 500 and Nasdaq Composite, the Dow is less objective regarding which companies are included. The companies are chosen by a committee based on their reputation, growth, industry, and other factors.
Furthermore, unlike the other two indices, the Dow is price-weighted, which means that the weight of each stock in the index is proportional to its current share price.
Dow Jones Vs. Nasdaq Vs. S&P: How do these Indices differ?
When it comes to an understanding of how to invest in us stocks from India, not only is it important to understand the most popular indices, but it is equally important to understand how they differ. When it comes to distinguishing between Dow Jones Vs. Nasdaq Vs. S&P, there are three major factors:
- Size:
The number of companies in these three indices is one of the most obvious distinctions between them. The Nasdaq Composite, which has over 2,500 companies, and the Dow, which has only 30 companies, are at opposite ends of the spectrum. The S&P 500 index consists of 500 companies.
- Diversification of industries:
Another significant distinction between the three indices is the sector diversification within them.
Because it is primarily made up of technology companies, the Nasdaq Composite offers the least amount of sector diversification. The technology sector accounts for 52% of the total index, while consumer goods account for 16% of the index.
On the other hand, the Dow Jones Industrial Average is purposefully well-diversified across many industries. Finally, the S&P 500 includes all 11 industries, with no single industry accounting for more than 30% of the index.
- Selection criteria:
Each of the three indices under consideration employs a unique set of criteria to determine which companies will be included. To begin, the S&P 500 comprises the 500 largest U.S. stocks with a market capitalization of at least $13.1 billion.
The Nasdaq Composite’s selection criteria are much simpler. The index includes all domestic and international common stocks listed on the Nasdaq stock exchange.
Why invest in the American Share Market?
- The ever-growing Dollar:
According to historical data, the Indian Rupee has been losing ground versus the US dollar. The rupee-to-dollar exchange rate determines the profits you will get from investing in overseas stocks. If assets denominated in dollars, such as US stocks, rise in value, any rupee depreciation helps to raise profits. You benefit if the rupee depreciates about the dollar, even if overseas markets perform poorly or remain the same.
- Center of innovation:
The hub of the continuous invention is in the US region of Silicon Valley. Startups and new businesses with unique products may catch the interest of potential investors. There are many prospects for investing in cutting-edge discoveries like biopharma, machine learning, and artificial intelligence on the US stock market.
Investors can choose between going for the big fish in the industry or selecting any new firm that gets their attention. Be sure to keep an eye out for them because you never know what opportunity you might miss. Perhaps teen garage startups like Facebook and Amazon were the origin of these businesses.
- Geographical Diversification:
Diversification is a popular topic in the investment world. Geographic diversification is often associated with allocating your capital across different asset classes, but it is also an important consideration. While diversifying an investment portfolio within the asset classes available in India is possible, geographical diversification reduces the risks that the Indian market carries on its own.
Investing in US markets diversifies your portfolio by allowing you to invest in top sectors such as innovation, financial services, autos, and precious metals. Investing in such markets makes you independent of the Indian stock markets and economy.
- Access to Global Companies and fractional shares
Some may argue that US stocks are overpriced and thus unsuitable for long-term investment. The ability to purchase fractional US stocks is a tremendous benefit. Assume you have only $20,000. You can invest $5,000 in each of your four favourite US businesses, and so on. This feature of fractional share investing enables investors to spread their funds across multiple companies.
How to invest in the American stock market?
- Direct investment via New Age Platform Apps:
Investing in the American share market from India has been simplified vastly due to the advent of new age applications.
Stockal offers a simple and quick way to invest in the American stock market. It is a neo-brokerage platform that gives you access to global markets and allows you to diversify your portfolio. Indian investors have access to over 5,500 stocks and ETFs on US exchanges.
Investors can choose from stocks, exchange-traded funds (ETFs), and custom international portfolios created by financial experts. When you open an account with Stockal, they automatically open a brokerage account with their US clearing and brokerage partner. Within 15-20 minutes, your account will be approved. Then, with Stockal you need to do is add funds to from your bank account and get started with your investing.
- Direct Investment via International Brokers:
You can also open an offshore trading account with a broker in India. Make sure you understand the fees before opening an account. Before deciding on the best broker to invest in US stocks from India, do your homework.
- Investment via NSE IFSC:
The NSE International Exchange (NSE IFSC), a division of the NSE, has announced that trading in select US stocks is now available on its platform. NSE IFSC is an international exchange based in Gujarat International Finance Tec-International City’s Financial Services Centre (IFSC) (GIFT City).
Investors must open a Demat and trading account with a broker who is an NSE IFSC registered broker. It is necessary to transfer funds from the investor’s domestic bank account to the broker’s account. Investors can begin trading in US stocks after a successful transfer.
Using the Reserve Bank of India’s (RBI) liberalized remittance scheme (LRS) limits, investors can invest up to $250,000 per fiscal year in US stocks.
- Mutual Funds:
Mutual funds are another way to invest in US stocks. Mutual funds offer advantages such as geographical and portfolio diversification, but they also come with their own set of risks and rewards. Changes in the domestic market, as well as volatility in the currency markets, may have an impact on the fund’s overall performance. Additionally, these funds are subject to ongoing fees and expenses associated with the global plan in which they are invested.
How does Stockal make everything hassle-free?
We have by now understood the various indices in the American stock market and the key differences between Dow Jones Vs. Nasdaq Vs. S&P 500. However, the key part to understanding how to invest in American stocks from India is in gauging how Stockal and its various features can make investing in American stocks a smooth and hassle-free journey:
- Curated portfolio stacks:
It takes time and effort to maintain a diverse and profitable portfolio. Stockal’s stacks eliminate the need for multiple papers and multiple expert consultations. So you can sit back and enjoy the benefits of your money while it works for you. For example, if you wish to invest in the electric vehicle sector, you may look at the Electrical Vehicle Portfolio; if you wish to invest in the global tech market, look at the All in Tech stack.
- Thematic ETFs
Stacks are pre-configured collections of stocks and ETFs that can be purchased with a single click. Stockal claims to be able to solve the investment conundrum by curating pre-made portfolios centered on an idea or theme. On Stockal, you can invest in ETFs that focus on the internet companies on NASDAQ, such as the Invesco NASDAQ Internet ETF, and ETFs that focus mainly on the Dow Jones, such as Dow Jones Industrial Average ETF SPDR.
- Ability to buy fractional shares:
Investors in the United States can own fractions of stocks, which sets them apart from markets in other countries. You might own 0.05 or 0.015 shares of Apple, for example. You can own as few as 0.0001 shares of any stock on Stockal. This is advantageous for two reasons:
You don’t have to ask, “how many shares should I buy?” Simply enter the amount of money you wish to invest, and the number of units will be calculated and immediately credited to your account. For example, if you invest $100 in a company worth $270, you will receive 0.37 shares.
- Easy money transfer process and easy to track:
Your Stockal account can be easily and quickly replenished. Go to your Homepage, then click “Funds,” followed by “Add funds.” Enter the amount you want to be deposited into your brokerage account. You can enter your bank information for the initial money transfer, which will be the default for all subsequent payments.
Account settlement takes T+2 business days on average. As a result of the selling earnings, you will notice unsettled cash in your account balance. Cash that has not been settled will be displayed in the ‘Cash Settlement‘ section until it is transferred to your account.
