Is this the right time to start investing in US markets?

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Prateek Jain, co-founder and president, Winvesta in an interaction with Money9, shared his views on the how Joe Biden’s victory in the US election can affect the decision of domestic investors who are investing in the American market. He also talked about how Indians can invest in overseas market and what are the tax implications:

Edited excerpts:

What does Biden’s victory mean for the US markets? While there has been some apprehension about market performance in case of a blue wave (Democrat control of both the house and the white house), history shows that market performance under such a scenario has not been worse than the overall average. However, there will be some sectors which may react more favourably under the Biden administration.

Which all sectors are set to be the winners during Biden’s presidency? Sector winners on Biden’s victory would include industrials, tech, and materials-cyclical industries that benefit from accelerating economic growth. Infrastructure-related stocks, including the construction and transportation sectors, would be longer-term winners. A Democrat control also likely means more stimulus and a greater emphasis on policies to address climate change and health care. That puts the spotlight on biotech and cleantech companies. On the other hand, Trump’s regulatory policies and support for defence spending are less likely to continue.

Is this the correct time to start investing into the US markets? Investing in US markets comes with the usual risks of investing in equity markets. Investors should consider their risk profile to allocate appropriate weight to international investments. The added diversification in the portfolio should help investors in the long term. Indian investors should look at it as portfolio allocation rather than worrying about timing the market. As the popular saying goes – ‘Time in the market is more important than market timing’.

What are maximum and minimum investment limits to invest in the US markets for Indians? There is no minimum limit for investing in the US markets. The introduction of fractional investing has completely democratised foreign investments and now one can start investing in US markets with as low as $100. On Winvesta, investors can easily invest in using fractional investing. Investments into the US markets are made through RBI’s Liberalized Remittance Scheme or LRS. The scheme allows every Indian resident to remit up to a maximum of $250,000 per year. This limit is per individual, including minors, which means that a family of 4 can remit up to $ 1 million per financial year. This quota includes any investments like US securities, real estate, and bank deposits, etc. and all overseas expenses like foreign travel and student education.

What are the different charges and tax implications for Indian investors? With Winvesta, there are no fees to join. There are also no annual maintenance charges. We give investors up to 10 free trades per month, beyond which there is a small $1 flat fee per trade. When remitting the money overseas, your bank may charge a fixed wire transfer fee. For any remittance above the Rs 7 lakh annual limit, the bank would also deduct a 5% TCS (tax collected at source) which can be claimed back during the tax filing.

There is no capital gains tax in the US for foreign investors. Investors will have to pay capital gains tax in India depending on how long the investment is held for (short term vs long term capital gains tax). Dividends are taxed at a flat 25% in the US for Indian investors and get taxed as ordinary income in India. You, however, get foreign tax credits for any tax paid in the US on dividends to offset domestic taxes. There is no paperwork required for US taxes-the dividend tax is deducted before the dividends are deposited in your account.