Investments, of course, are subject to market risks. But what about other country-specific risks threatening the safety of your investments? Do you care enough about them?
This article answers that in the context of the US stock market in particular. The American market is one of the safest avenues for Indian investors.
What makes it so? Broadly speaking, first and foremost, the US is a mature democracy where the law is said to apply equally to everyone. More importantly, for our purposes, companies, industrial sectors, and financial markets are well regulated, ensuring transparency and fairness. But the specifics need a closer look. Let’s find out what makes the US market a secure investment destination for Indian investors looking to invest overseas.
Here are three things that make investing in US stocks pretty safe.
1. A high level of corporate governance and transparency
The United States is a safe bet when it comes to corporate governance and transparency norms. The country has some of the most stringent corporate governance norms in the world. And companies operating out of the US are required to diligently adhere to all disclosure norms.
2. SEC and FINRA oversee the US market’s functioning
The chief market regulators in the US, the Securities and Exchange Commission (SEC) and FINRA (Financial Industry Regulatory Authority) keep a close watch on all stock market and corporate activities.
Interestingly, FINRA is a private, not-for-profit organization that oversees the activities of US broker-dealers numbering about 6,50,000. It functions under the direct watch of the SEC and has the authorization of the US Congress to safeguard the interests of investors.
Thanks to these two bodies, stock market investments in the US are considered less risky than in emerging markets, which are often rocked by political uncertainty and other factors.
3. SIPC insures up to $500,000 of your US investments
The Securities Investor Protection Corporation (SIPC) was established in the US in 1970 to protect investors from stock market fraud.
And if you choose CoinSwitch, our broker-dealer partner in the US, DriveWealth LLC, is a member of the SIPC. In the unlikely event that DriveWealth LLC fails, your US holdings are insured up to an amount of $500,000.
Essentially, SIPC insures investments—including stocks and bonds—subject to an upper limit of $500,000, with a $250,000 cap for cash claims. Please note that insurance protection will not cover general losses in the stock market. A key advantage of SIPC is that an Indian resident who holds an account with a brokerage firm that is a member of the SIPC gets the same protection as a resident of the United States.
Even if all of this has clarified why investing in US stocks is a rather safe bet, you may have one last question on your mind. So let’s clear that up in conclusion.
Who holds the US stocks you invest in?
In India, an individual can directly trade in stock markets using a demat account. However, the system works a bit differently in the United States. Foreign investors can purchase equities only through a US broker.
CoinSwitch has thus partnered with Stockal, a global investing platform, to help you invest in US stocks. Stockal is headquartered in New York and has its India office in Bengaluru.
In the US, CoinSwitch has tied up with DriveWealth LLC, our broker-dealer partner. DriveWealth is registered with the US Securities and Exchange Commission and is regulated by FINRA. DriveWealth manages all records of your holdings. The US stocks you own are held in your name with DriveWealth’s custodians. This makes your US holdings absolutely safe as the broker is bound by the SEC regulations.
Wrap-up
In short, if you are looking to invest in foreign markets, the US should figure on top of your list. Strict regulatory oversight and tight corporate governance norms make investments in the US much safer compared to other markets.
