Many Indians can now turn their aspirations of studying abroad, particularly in the US, into a reality, thanks to the ease and feasibility brought about by the Liberalized Remittance Scheme (LRS) that facilitates the transfer of substantial amounts of money overseas for educational purposes. Traditionally, the path to funding a child's education involved accumulating funds in India and then transferring them overseas to cover tuition and living expenses. Nevertheless, building up this corpus in assets denominated in US dollars offers various benefits.

Advantages of Investing In the US Stock Market 

1. Exposure to New Opportunities 

The United States is often referred to as the land of opportunities and for good reason. It hosts several prominent global companies, including those based in Silicon Valley, which is known for its consistent flow of tech innovations and startups. To be a part of this dynamic growth, investing in US stocks is a smart move. Meta is just one instance among the multitude of major companies worldwide that you can access and invest in through the US stock market.

2. Low Volatility

Diversifying your portfolio by investing in US stocks offers several benefits, including reduced volatility and risk. Historical returns and data demonstrate that US markets are generally less volatile and more stable than Indian stocks. By investing in stocks from multiple companies across the globe, you spread out your funds and minimize the overall risk, while still gaining access to the best returns from diversified markets.

3. Benefit of Dollar Appreciation

It's worth noting that the Indian rupee is currently depreciating against the US dollar, which can impact the value of your investments and any assets you hold in Indian currency. However, if you have dollar-denominated assets, like US stocks, in your portfolio, at least a portion of your portfolio can remain immune to the rupee's depreciation. Furthermore, even if the rupee continues to decline against the dollar, your portfolio can still perform well.

4. Taxation Benefits

Many Indian investors who are considering investing in the US stock market express concerns about the applicable taxation rules. However, as per US laws, an Indian citizen who owns stocks in the US stock market is only subject to a 25% tax, which is lower than what other foreign investors are required to pay. This is thanks to the tax treaty between India and the United States of America.

In the event that a company pays out a dividend of USD 100, you will be liable to pay a tax of USD 25, which will be withheld before the dividend payout. Consequently, you will receive a dividend of USD 75.

Tips for Effective Management of Funds for Your Child's Education in the US

1. Start Investing Early

Proper financial management can be achieved by avoiding lost time opportunities. It is essential to start investing early as the power of compounding works best when the investment period is long. By beginning early, you can prevent a situation where your child is ready to study abroad, but you suddenly realize that you don't have enough funds saved. 

To avoid such circumstances, it is recommended to start building an investment portfolio specifically tailored to this objective with long-term investments and returns. With the right amount of time, such investments can generate remarkable returns. Moreover, even starting with small amounts can prove to be beneficial if invested over a long period. All you need is to start early and maintain regularity with your investments.

2. Invest in the Right Instrument

Once you have determined the amount of money you wish to invest, it's time to consider the assets that can offer stable returns. To ensure a balanced and diversified portfolio, you can choose to invest in a combination of low-risk investment vehicles with varying returns. For instance, you may opt for fixed-income products, low-yield funds, and exchange-traded funds (ETFs). This approach can provide you with a stable source of income while also enabling you to grow your money over time. Experts recommend allocating investments in a 75:20:5 ratio among these assets to maximize savings and accelerate earnings, which can help you fund your education goals at the right time.

3. Equal Contribution

When both parents are working, they can equally contribute to their child's education abroad. This way, they can quickly achieve their goal of funding overseas education and make it more affordable. By each parent contributing a portion of their income every month, the amount can compound faster, and the burden on a single parent can be reduced. Additionally, sharing the financial responsibility ensures that the goal can be achieved earlier and at the best possible time. Thus, when it comes to effective financial management, making equal contributions as a team can be a wise move, as it promotes shared responsibility and consistency compared to individual efforts.

4. Estimate the cost of studying in the US

Once you have started early and decided to contribute equally towards your child's education abroad, it's time to calculate your expenses. This is the stage where you need to carefully consider every aspect that requires a financial commitment. Begin with the tuition fees, which is likely to be the most significant expense, followed by various other expenses such as food, electricity, accommodation, transportation, and utilities. By considering these factors, you can make informed decisions and create a realistic budget plan before your child commences their higher education overseas. This approach can help you manage your finances wisely and ensure that you are financially prepared for your child's education abroad.

5. Diversify your Investment Corpus

Investment decisions are crucial to secure a comfortable future. Most Indians are likely to choose real estate, gold, and bank deposits as safe investment options, which has been a proven strategy. However, it takes several years for these investments to mature, making it challenging to accumulate large sums of money required for a child's education. Therefore, it would be wise to invest in other options like real estate stocks, bonds, and mutual funds that can generate higher returns in a shorter span of time, and that too at a lower cost.

Final Thoughts

Investing in the US market provides an excellent way to support your child's global education. It allows you to take advantage of the vast financial opportunities available, while at the same time creating a portfolio that is tailored to your family's needs. With careful research and thoughtful decision-making, parents can feel good knowing that they are making smart decisions for their children's future.