US Equity Mutual Funds- A Complete Guide
In recent years, many Indian investors have started turning towards foreign stock markets, especially in developed countries like the USA. Investing in the US market allows investors to diversify their portfolios internationally.
In this blog, we are aiming to cover the best mutual funds that invest in US stocks. These offer the benefit of geographic diversification and hedging against rupee depreciation.
What are US Equity Mutual Funds?
US equity funds are international mutual funds that invest most of their corpus on stocks of companies based in the USA. These companies have to be listed in the US stock market.
International funds invest the pooled money into equities and equity instruments of companies listed in stock markets outside India. Many of the US equity focused mutual funds in India are funds of funds where a feeder fund invests in a master fund.
The returns that the investors receive will greatly depend on the market fluctuations in the USA. These funds, however, are considered a good investment choice if someone wants to diversify his/her portfolio in a market that has lower correlation to the Indian market.
Moreover, experts have also noticed that some of these stocks and schemes have performed very well and yielded high returns in the past. Therefore, if you decide to invest in US equity mutual funds, you will park your money under some of the biggest American companies.
Furthermore, in most scenarios, these US funds are feeder funds where the fund invests the finances into a master fund located in the USA. These are an added layer on top of any ETF or underlying fund.
Take the example of an AMC that pools money from investors and invests in an ABC company based in the USA. As this company has no presence on the Indian stock exchange, the AMC pools funds to eliminate risks of direct exposure to the US stock market.
List of Top Performing US Equity Mutual Funds in India
If you are interested in investing in US stocks mutual funds in India, then we have curated a list of the top 10 funds based on their past performance.
|Name of the US Equity Stocks Mutual Fund||3 Years Annualised Returns||5 Years Annualised Returns|
|Motilal Oswal Nasdaq 100 ETF (MOSt Shares NASDAQ 100)||18.83%||19.52%|
|Nippon India US Equity Opportunities Fund (G)||12.12%||15.02%|
|ICICI Prudential US Bluechip Equity Fund (G)||11.75%||13.76%|
|Franklin India Feeder Franklin US Opportunities Fund (G)||8.90%||12.44%|
|Edelweiss US Value Equity Offshore Fund – Direct Plan – Growth||13.00%||12.25%|
|Kotak US Equity Fund – Direct Plan – Growth||13.24%||11.67%|
|ICICI Prudential Global Stable Equity Fund (FOF) Direct-Growth||7.69%||8.49%|
|Aditya Birla Sun Life Global Emerging Opportunities Fund Direct-Growth||11.89%||8.43%|
|DSP Global Allocation Fund – Direct Plan-Growth||7.50%||7.10%|
|Invesco India – Invesco Global Equity Income Fund of Fund – Direct Plan-Growth||6.98%||6.17%|
Types of International Mutual Funds Investing in US Equities
Mutual funds which invest in US stocks are a subset of international mutual funds. So below are the various types of international mutual funds: :
- Global funds
Global and international funds may sound the same, but they differ. In global funds, investors’ money will be invested in stocks listed anywhere around the world, including in their domestic country. However, with international funds, the corpus is invested in all the other countries except for the investors’ residing country.
- Global sector funds
Here the fund invests the corpus only in a particular sector worldwide. So it can be any sector such as mining, agriculture, etc. This will allow investors to take the focused exposure to any particular sector.
- Regional funds
This type of fund invests money in businesses from a certain geographic area anywhere in the world. Investors who are well-versed in a particular geography can concentrate on purchasing several regional funds rather than global ones.
- Country funds
This type of international fund invests in businesses that are based in a single foreign country. This makes it possible for an investor to make profits from the markets of other nations. For example, a US country fund is an investment which allows you to take exposure to US stocks and securities.
Benefits of Investing in Mutual Funds with US Stocks
Below are a few benefits you will receive as an investor if you invest in US equity mutual funds:
- Diversification- When you invest in international mutual funds, you are essentially looking to diversify your portfolio globally. Investing in US-based stocks via mutual funds will enable investors to safeguard his/her portfolio from risks in the Indian stock market. Moreover, investors get to take advantage of the market cycles from other countries. In this case, it will be the US market.
- Cost-effective- As an investor, if you choose the appropriately valued portfolio, then you will be able to make your investments cost-effective. Furthermore, you will also be able to align your investments to match your financial goals, like accumulating money for your retirement or children’s wedding.
- Portfolio management- When you invest in a mutual fund, you will get a fund manager’s assistance in managing your money. Fund managers will make informed decisions related to the market conditions and invest accordingly. This could be extremely helpful when investing in markets outside your country.
Risks of Investing in US Equity Mutual Funds
Investing in US stocks mutual funds in India is accompanied by certain risks, and they are:
- Exchange rate risks- When you invest in US equity mutual funds, you are exposed to risk of fluctuations in the foreign exchange rate. This can impact your portfolio returns negatively.
- Foreign market risks- Investors are exposed to foreign market risks when they invest in US-based funds. That is why experts suggest investors keep an eye on the country’s social, political and economic outlook because these will affect the market conditions.
- Concentration risks- If you invest in mutual funds focused on specific sectors like mining or agriculture, they will carry certain sector-specific risks. For example, if you invest in US-based mutual funds for mining and the entire industry is not doing well, your returns can go down considerably.
Who should Invest in US Equity Mutual Funds?
The following kinds of investors can choose to invest in US equity mutual funds:
- Investors with a desire to venture into the USA investment landscape.
- People who want to create a hedge against the depreciation of the Indian Rupee.
- Investors with a long-term investment horizon and a high risk-taking capacity.
- Investors who want geographical diversification with equity instruments in the US economy.
- Investors who want to invest in stocks of big US companies like Facebook, Netflix, Google, Microsoft, Amazon, etc.
Also Read: Investment vs Trading: A Comparative Guide
Things to Consider Before Investing in US Equity Funds
Here are a few things you should consider before you invest in US-focused mutual funds:
- Risks involved- Even if you invest in top-performing funds investing in the top companies, your investments are not free of market-related risks. For example, companies whose stocks have performed well in the past may stop doing well due to various economic or political factors. That is why as an investor, you must thoroughly understand the economic outlook along with all the rules and regulations of the US market.
- Fund manager’s role- When you invest in any mutual fund, a fund manager will take the responsibility of managing the investments on your behalf. You should research the past record of the fund house and the fund manager before entrusting your money to them. Check whether they have any experience in handling international mutual funds. If yes, then examine how well those funds are performing.
- Expense ratio: Ensure to consider the expense ratio because this will determine the kind of returns you will receive in hand. The expense ratio is the amount the fund houses charge for managing your funds on your behalf.
Taxability of US Equity Funds
Capital gains from US equity mutual funds are taxed in the following manner in India:
- Short-Term Capital Gains- If you redeem your funds before three years, the gains you receive will be added to your taxable income and will be subject to income tax as per your applicable tax slab rate.
- Long-Term Capital Gains- As per the finance bill 2023, if the International mutual fund is holding less than 35% exposure to Indian or domestic equities, the long-term capital gain will also be applicable at the slab rate.
India investors are keen on investing in the US stock market because the US stock indices, the Dow Jones (DJI) and NASDAQ (IXIC), have given excellent returns in the last few years. Thus, mutual funds that invest in US stocks are capable of yielding high returns.
You can try your luck at investing in this international market because there are many US-based companies whose stocks are performing very well currently. However, take your decisions after thoroughly understanding the market and how these funds work.
Frequently Asked Questions
How do US equity stock mutual funds work?
These mutual funds work like any other equity fund. The fund house will take the money from the investors in INR and then invest it by buying various units and allocating them to individual investors.
Fund houses can buy US stocks directly to build an investor’s portfolio. Alternatively, they can invest the corpus in already existing global funds. AMCs design these portfolios and include funds from various other foreign stocks.
How long should I hold my investments in US mutual funds?
These are equity funds, meaning the longer you hold these investments, the better returns you are likely to receive. However, many market-related risks are associated with these funds, so the ideal time for holding these funds is five years or longer.
How can I invest in US equity mutual funds?
If you wish to invest in US-based mutual funds, follow the steps below:
Step 1: Register yourself with your choice of financial institution.
Step 2: Go to the website’s mutual fund section and select your US-based mutual fund option.
Step 3: Select the invest option and enter the amount you wish to invest. Also, remember to choose your investment mode via SIP or lump sum.
Step 4: Submit all your KYC documents like Aadhaar card, PAN card, etc.
What are the characteristics of the ICICI Prudential US Bluechip Equity Fund?
Other than investing in equity and equity-related instruments, this mutual fund also invests in GDRs/ADRs, which US-based companies use for some Indian companies. It also follows a top-down and bottom-up approach without any sectorial preference while investing.