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Are ETFs underrated? Here's how you can invest in US ETFs

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Are ETFs underrated? Here's how you can invest in US ETFs

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Have you ever wondered about the best ETF to invest in India? Or have you always prefered to invest in a pooled investment security rather than selecting individual stocks for yourself? For some of us, this might be a go-to for many reasons — including a lack of knowledge or confidence in the markets, insufficient time to do adequate research on stocks, or may be due to a desire to fall back on professional help.

I have been on the lookout for a pooled investment security but have wanted to opt for an investment that provides me with more flexibility than mutual funds do. I found that set against this backdrop, exchange-traded funds (or ETFs) might be what I’m looking for. 

Continue reading to understand all that I learned about ETFs, how to invest in international ETFs in India, and why many people are considering investing in US ETFs in India.

Brief meaning of ETFs 

An exchange-traded fund can be considered a pooled investment security that functions like a good old-fashioned mutual fund. This is evident from the fact that ETFs keep tabs on a given index, commodity, sector or another asset. 

In contrast to mutual funds, you can purchase or sell your ETF holdings on a stock exchange, like regular stocks. Therefore, the share prices of ETFs fluctuate throughout the day as they are bought and sold. Anything ranging from the price of a sole commodity to a diverse range of securities can be tracked by ETFs. These funds can also be structured to keep tabs on specific investment strategies. 

Why invest in an ETF? 

Now that you know what an ETF is, you may be wondering why I am of the opinion that ETFs ought to be invested in. The points touched upon below will highlight my argument for ETFs. 

  • For starters, they provide you with lower average costs as it would be far more expensive for you to purchase each stock featured under an ETF portfolio. 
  • Next, you need to execute one transaction alone to buy and one to sell, which means you incur lower broker commissions as there are only a handful of trades being carried out by investors. 
  • Most ETFs have a fairly low expense ratio. This ratio provides insights into the expenses associated with operating and managing a fund. 
  • Since ETFs enable portfolio diversification, they help with risk management.
  • Finally, it is possible to focus on targeted industries with an ETF. 

How you can Invest in US ETFs From India 

Today, rather than being limited to the best ETFs India has to offer, investors are also considering investing in international ETFs in India. This desire to invest in foreign funds stems from allowing investors to gain exposure to companies whose products and services are currently high in demand. To understand this better, consider Netflix or Apple. These are two companies with a global presence but aren’t available on the Indian stock markets due to their American origins. 

In order to get in on the profits that these companies generate, you should consider investing in an international ETF. India presently offers several means via which US ETFs can be invested in.

You have the choice to either use a domestic or international broker to purchase US ETFs. If this does not appeal to you, you can always purchase shares of an Indian ETF with global indices. Some of the best ETFs to invest in India provide you with this route.

Find an investing platform that makes it possible to carry out either one of the above-mentioned investing routes. Be sure to conduct adequate research before opting for a given ETF and consider the sector or industry it is focused on. 

The types of ETFs out there

  • Bond ETFs – These ETFs provide investors with a steady stream of income. Income distribution is linked to the way the underlying bonds perform.
  • Commodity ETFs – This form of ETF invests in commodities like gold or crude oil. They help with portfolio diversification and allow a more affordable way to invest in a commodity in contrast to physical possession of the commodity in question. 
  • Currency ETFs – These pooled investment vehicles keep tabs on currency pairs made of domestic and foreign currencies. They allow you to speculate on the price of currencies concerning a country’s economic and political developments.
  • Industry/ Sector ETFs – As the name suggests, such ETFs follow a specific industry or sector. By investing in such ETFs, you acquire exposure to the upside of that industry. It is possible to rotate in and out of sectors over the course of economic cycles with these ETFs.
  • Inverse ETFs – These ETFs seek to amass gains via stock declines by shorting stocks. This means that they sell stocks with the hope that said stocks would decline further such that they can be repurchased for a lower price. 
  • Passive and Active ETFs – ETFs are either managed passively or actively. While the former follows the performance of a broader index, the latter has portfolio managers responsible for making decisions about which securities are to include.

Is it beneficial to invest in US ETFs?

Today, there exist a number of foreign ETFs in India. Among these, US ETFs have begun to gain popularity. This is owed to the benefits they bring with them, some of which are given below:

  • From a historical point of view, the US stock market indices have been far less volatile compared to the Indian stock market indices.
  • Next, several leading global corporations are located in the United States and provide investors with a more diversified investment opportunity.
  • In the past ten years, the American stock market has outperformed the Indian stock market in pure dollar terms.
  • Given that the US currently serves as the centre of global innovation, it is possible to invest in an ETF that has invested in a promising company while it is still in its nascent stage. 

Penny for your thoughts 

Ultimately, the best ETF to buy now will depend on the industry or sector you’re eyeing, your threshold for risk and the time frame you are willing to devote to your investment. Indian ETFs that provide exposure to foreign stocks are worth considering as well. Bear in mind that international investments incur more charges than domestic investments. Pay attention to the US market and economy in order to make calculated decisions. If ETFs still don’t cut it, you can explore US index funds in India.

Frequently asked questions

1. Which is the best US ETF? 

Ultimately, it boils down to the industry or sector you hope to invest in. Even if you are looking beyond Industry/ Sector ETFs, there are other factors, risk threshold & time to devote. Regardless of your needs, there are plenty of options:

  • Bond ETFs
  • Commodity ETFs 
  • Currency ETFs
  • Inverse ETFs 
  • Passive and Active ETFs

2. Can you buy US ETFs in India?

Yes, you can. Select a domestic or international broker that dabbles in US ETFs. Alternatively, you could pick an Indian ETF that emulates global indices too. The only thing you have to remember to do is research the industry or sector you are considering pooling your money into.

3. Is it good to invest in a US ETF? 

There are several clear advantages to doing so. Your US ETFs may provide comparatively decent returns — as the US stock market indices are usually less volatile than the Indian stock market indices. This is compounded by the fact that in the last ten years, the US stock market has outperformed its Indian counterpart in pure dollar terms. Another advantage would be getting in early on trends. A US ETF may have picked up on a company that’s on the verge of sweeping the world.

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