What is the U.S. ETF & How to Invest in One?

Investing in the U.S. stock market is a great way to diversify your investment portfolio. However, if you’re new to investing and are unsure where to begin, investing in some of the best U.S. ETFs can be a good starting point. 

 

Want to know more about what a U.S. ETF is and how to begin investing in one? Here’s a comprehensive guide that can help you understand the concept behind this unique asset class and the process that you need to follow to invest in it. 

Firstly, before we proceed to address this question, let’s first take a look at what an ETF is. 

 

The term ETF is an acronym for Exchange Traded Fund. An Exchange Traded Fund is an investment fund that pools money from different individuals and invests it in multiple securities or asset classes, much like a mutual fund. However, unlike a mutual fund, an ETF is traded on an exchange like the stock of a company. This not only makes them more liquid than a mutual fund but also more cost-effective.  

 

A U.S. ETF, as the name implies, is an Exchange Traded Fund that invests solely in U.S. securities. This includes U.S. stocks, bonds and government securities, among others. A U.S. ETF can either be diversified, focused or thematic. 

 

A diversified U.S. ETF invests in different asset classes to reduce investment risk. A focused U.S. ETF, on the other hand, invests in securities from just one or two sectors or industries to maximise the wealth creation potential. And finally, a thematic U.S. ETF invests in stocks that are associated with a theme. Some of the popular themes include renewable energy, cloud computing, Artificial Intelligence and Machine Learning and other emerging technologies. A thematic U.S. ETF offers a good mix of wealth creation potential and diversification. 

There are many benefits that you get to enjoy by investing in some of the top ETFs in the U.S. Let’s take a closer look at some of the key advantages. 

• Portfolio Diversification 

As you’ve already seen, investing in a U.S. stock ETF can help you diversify your investment portfolio. You can increase the level of diversification by opting for an Exchange Traded Fund that invests in different securities. 

• Exposure to Unique Stocks and Securities 

A U.S. ETF gives you access to the stocks of multinational technology companies such as Amazon, Apple, Microsoft, Tesla, Meta and Alphabet, among others. Additionally, you also get exposure to different securities that are unique to the country such as U.S. treasury bonds. 

• Potential for Greater Gains 

The U.S. stock market has historically produced higher returns compared to the Indian stock market. By investing in some of the best U.S. ETFs for the long term, you can leverage the wealth creation potential of the American stock market and achieve your financial goals much faster.   

• Benefit from U.S. Dollar Value Appreciation 

Over the past few years, the U.S. Dollar has been consistently appreciating against the Indian Rupee. Since you would have to use USD when purchasing units of an ETF in the U.S. market, any value appreciation in the currency will likely further enhance your returns.

How to Invest in a U.S. ETF? 

If you’re an Indian investor wanting to invest in the U.S. ETFs, here are a few ways through which you can do it.

• Through an International Stock Broker

Many international stockbrokers are present in India. You could open a trading account with them and gain access to some of the best ETFs in the U.S.A. However, before you open an account make sure to check the charges levied by the stockbroker. Always compare multiple brokers and choose the one that levies the least amount of charges. 

• Through a Domestic Stock Broker

Of late, many Indian stockbroking firms have begun to offer global trading accounts in partnership with U.S. stockbrokers. You can purchase units of some of the best ETFs in the U.S. market through this account. That said, make sure to thoroughly read through the terms and conditions before taking this route.  

As a prospective investor, you have a lot of options as far as the U.S. Exchange Traded Funds are concerned. However, it is crucial to invest in a fund that’s right for you. Here’s a list of ETFs that you can consider adding to your investment portfolio. 

Though an Indian investor can purchase units of a U.S. ETF, there is one major restriction; and it has to do with the maximum amount that you can invest. Under the Liberalised Remittance Scheme (LRS) of the Reserve Bank of India (RBI), Indian investors can remit only up to $250,000 per financial year without having to seek the RBI’s approval. Therefore, it is advisable to make sure that your investments in U.S. stock ETFs don’t exceed $250,000 in a financial year.