What is the US Stock Market? How does it Work? How to invest?

nvesting is a way to grow your money by putting it to work. If you have been investing in the Indian stock market or considering it, have you ever thought about investing in stocks of other countries? The US stock market is home to some of the world's largest and most well-known companies like Coca-Cola, Apple, Meta, and Google. 

In this blog, we will explore the basics of investing in US stocks, including the major US stock exchanges, key indices, and different ways to invest from India. Understanding these fundamentals will help you expand your investment horizons and explore opportunities beyond the Indian stock market.

Understanding US Stock Exchanges

In the United States, stocks are traded on major exchanges such as NASDAQ and the New York Stock Exchange (NYSE), similar to the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in India. These exchanges have indices that measure the overall performance of the stock market.

The US has three important indices: the Dow Jones Industrial Average, S&P 500, and NASDAQ Composite, which are equivalent to India's SENSEX and NIFTY. The Dow Jones tracks 30 large, blue-chip companies, the S&P 500 includes 500 large companies from different sectors, and the NASDAQ Composite represents the value of stocks listed on the NASDAQ exchange.

The New York Stock Exchange (NYSE) is the largest stock exchange globally in terms of market capitalisation, while NASDAQ is the second-largest in the US.

How can you Invest in US Stocks from India?

There are two ways to invest in US stocks from India:

Direct Investment

You can directly invest in US stocks and Exchange-Traded Funds (ETFs) through platforms like INDmoney. Fractional trading allows you to start your investment journey with as little as $1 by purchasing a portion or fraction of a share. Fractional investing enables you to build a portfolio and maximize your investment opportunities within your budget.

Fractional shares work similarly to whole shares, offering the same percentage gains, losses, and proportional dividend payments. With fractional shares, you can diversify your portfolio by investing in portions of popular US stocks like Meta (formerly Facebook), Amazon, Apple, Netflix, and Google.

Indirect Investment

Another option is to invest indirectly in US stocks through mutual funds. Various funds are available that cover different industries and asset classes. However, this method may have disadvantages such as higher expense ratios, sales charges, management abuses, tax inefficiency, and poor trade execution.

Regulations and the Liberalised Remittance Scheme (LRS)

Residents of India can invest in US stocks under the Liberalised Remittance Scheme (LRS) introduced by the Reserve Bank of India in 2004. LRS allows residents to send money abroad without prior approval from the RBI, subject to certain limits. 

Currently, individuals can remit up to $250,000 per financial year under the LRS scheme, provided the transaction is not restricted and the amount is within the prescribed limit. Further details on this topic will be covered in upcoming chapters of this course.

Conclusion

Investing in US stocks opens up new opportunities to diversify your portfolio and explore the global market. Understanding the major US stock exchanges, key indices, and different ways to invest from India equips you with the knowledge to make informed investment decisions. 

Whether you choose direct investment or opt for mutual funds, it's essential to consider the advantages and limitations of each approach. With the introduction of the Liberalised Remittance Scheme (LRS), Indian residents have easier access to invest in US stocks. By expanding your investment horizons, you can potentially benefit from the growth of renowned US companies and enhance your overall investment strategy.