Investing In Tesla: A Guide For Indians

Tesla is an innovative company that has disrupted the industry on a massive scale. The company, founded by Elon Musk, has seen enormous returns, with revenues going up by 80% year on year. As the largest electric vehicle manufacturer in the world, Tesla has a market cap of over $750 billion and its stock is considered a lucrative investment. For those in India, investing in Tesla is possible and this article will explore the ways to do so, including direct and indirect methods, as well as the benefits and drawbacks of each approach.

Direct vs. indirect investment methods

There are two ways to invest in Tesla from India: direct and indirect methods. Direct investment involves opening an international brokerage account and buying company shares. This method allows investors to have more control over their investments and choose the exact amount they want to invest in Tesla stocks. However, it can be expensive for Indian retail investors due to the dollar-rupee exchange rate, and there may be limits on the number of trades or restrictions on investing in specific investment vehicles.

Indirect investment, on the other hand, can be done through Mutual Funds (MF) or Exchange-Traded Funds (ETF) that invest in global equities. Mutual funds collect money from investors and invest in a range of shares and securities, including foreign equities. Exchange-Traded Funds (ETFs) are similar to mutual funds but are traded on exchanges with real-time pricing. ETFs can also provide exposure to specific sectors, such as healthcare or energy. However, the indirect method may not provide clarity on the proportion of money invested in Tesla shares, and there can be regulatory challenges with mutual funds due to investment limits set by the Reserve Bank of India.

When investing directly, individuals can use platforms like Stockal or INDmoney, which allow for fractional investing with as little as $1. These platforms enable Indian investors to invest in American equity shares directly without going through a fund. Direct investment in Tesla stocks through these platforms can provide higher returns and lower expenses compared to the indirect ETF/MF route.

Key Considerations

Before investing in Tesla stocks, individuals should consider their risk appetite, investment goals, financial health, and the company's performance and potential. Additionally, it is essential to adhere to the rules and guidelines set by the Reserve Bank of India (RBI), such as the Liberalised Remittance Scheme (LRS), which allows Indian residents to invest up to $250,000 per year without special permission.

How to open an international brokerage account

To open an international brokerage account, you will need to follow the steps outlined by your chosen brokerage firm. Here is a general overview of the process:

• Choose a reputable brokerage firm that offers international accounts, such as Charles Schwab International, Fidelity, Interactive Brokers, or moomoo. Compare their fees, features, and available markets before deciding.
• Gather the required documents. This may include a passport, proof of address, and tax documentation.
• Complete the account application process by providing your personal, employment, and financial information, creating login credentials, and verifying your identity.
• Fund your account by transferring funds from your Indian bank account to your new brokerage account. The minimum deposit amount varies by broker.
• Start investing in the US stocks and ETFs of your choice, such as Tesla (TSLA).

It is important to note that you will also need to adhere to the rules and regulations set by the Reserve Bank of India (RBI) and consider the tax implications of your investments.

Diversifying your portfolio

Geographical Diversification

Investing in Tesla from India allows you to diversify your portfolio geographically. By investing beyond the Indian market, you reduce your exposure to the fluctuations and risks associated with a single market. This diversification can help balance your portfolio and protect against country-specific economic downturns or market crashes.

Sector Diversification

Tesla, being a leader in the electric vehicle (EV) industry, provides exposure to a high-growth sector. The EV market is expected to grow significantly in the coming decades, and Tesla's position as a first mover and innovator makes it an attractive investment opportunity. However, it is important to note that investing in a single company, regardless of its potential, carries inherent risks. To mitigate this risk, you can consider investing in exchange-traded funds (ETFs) or mutual funds that track the EV sector or the broader technology or automotive industries. This way, you gain exposure to a basket of companies in the same sector, reducing the impact of any single company's performance on your portfolio.

Asset Class Diversification

Investing in stocks like Tesla can be a crucial part of your portfolio, but it is essential to diversify across different asset classes. Consider allocating your investments across stocks, bonds, real estate, commodities, and alternative investments. Each asset class has its own unique characteristics and behaves differently in different market conditions. By diversifying across asset classes, you can reduce the overall risk of your portfolio and smoothen the impact of market volatility.

Currency Diversification

Investing in US-listed stocks like Tesla also provides currency diversification. The US dollar is one of the strongest currencies globally, and investing in US stocks can be a hedge against fluctuations in the Indian rupee. The rising dollar and the declining rupee can work in your favour when it comes to long-term wealth creation. Additionally, investing in foreign currencies can provide a natural hedge against inflation and geopolitical risks associated with a single currency.

Risk and Return Diversification

When investing in stocks, it is important to consider your risk tolerance and investment goals. Diversifying your portfolio across different types of stocks can help manage risk. Include a mix of growth stocks, value stocks, and income stocks, ensuring that no single stock or sector dominates your portfolio. Regularly review and rebalance your portfolio to ensure it aligns with your risk profile and investment objectives.

The benefits of investing in Tesla

Investing in Tesla, the world's largest electric vehicle manufacturer, comes with several potential advantages. Here are some key benefits to consider:

• Geographical Diversification: Investing in Tesla, a US-based company, allows you to diversify your portfolio geographically. By investing beyond the Indian market, you can reduce your risk and protect yourself from fluctuations in any single market. Diversification is a fundamental principle of investing, and Tesla provides an opportunity to expand your horizons.
• Strong Growth Potential: Tesla has demonstrated impressive growth over the years. With revenues increasing by up to 80% year on year, the company is disrupting the automobile industry. As the world transitions to electric vehicles, Tesla is well-positioned to capitalize on this shift, making it an attractive investment prospect.
• Innovative and Future-Focused: Tesla is more than just an electric vehicle manufacturer. It is the world's first vertically integrated company in the sustainable energy sector, producing end-to-end clean energy products. This commitment to sustainability and innovation positions Tesla for long-term success and makes it a forward-thinking investment choice.
• Dependable Track Record: Despite its volatile stock price, Tesla has consistently delivered on its vision. The company has a history of winning investor faith based on concepts and projections, even before launching its products. This demonstrates strong leadership and strategic planning, which are essential for long-term growth.
• Leadership and Brand Value: Tesla is closely associated with its CEO, Elon Musk, a visionary and controversial figure in the technology industry. Musk's ambitious goals and talent for generating buzz have kept Tesla in the spotlight. This level of leadership and brand recognition can be a significant advantage in the competitive business landscape.
• Market Share and Performance: Tesla leads the global plug-in electric vehicle market, with a market share of 14.55% in the first half of 2021. This positions the company well to benefit from the growing global electric vehicle market, which is estimated to reach a valuation of around $1.31 trillion by 2028.
• Rupee Depreciation: Investing in US companies like Tesla can be advantageous due to the strength of the US dollar. The stability of the US dollar compared to the Indian rupee can help protect your investments from currency fluctuations and support long-term wealth creation.

How to buy a fraction of a share

Fractional shares are a way to invest in a company without having to pay the price of a whole share. This is especially useful when you want to invest in US stocks, which tend to be much more expensive than Indian stocks.

When you buy a fractional share, you're essentially buying a slice of a pie. For example, if the market price of a share of a company is $2,000, you would normally have to pay $2,000 to add it to your portfolio. With fractional investing, you can buy a smaller piece of that share for a lower price, such as $1. This allows you to invest in expensive securities and diversify your portfolio even with limited capital.

To buy fractional shares, you will need to open an investment account through an online broker or a robo-advisor. With a robo-advisor, you set your dollar amount and investment goals, and the robo-advisor chooses your fractional share investments and automatically rebalances your portfolio to keep you within your investment goal range.

When choosing a broker or robo-advisor, it's important to note that not all of them offer fractional shares. Additionally, each platform has its own curated list of stocks that investors can buy fractional shares of, so you should research the offerings before signing up. Other things to consider include fees, account minimums, and the process for executing and settling trades.

Once you've chosen a platform, you'll need to fund your account, which can usually be done via electronic funds transfer. After that, you can start investing and monitoring your portfolio through your dashboard.

It's worth noting that fractional investing is not currently allowed in India due to regulatory restrictions. However, there are platforms like Stockal and INDmoney that allow Indian investors to buy Tesla shares listed on US stock exchanges. These platforms also offer the option to buy fractional shares, so you can own a piece of Tesla even if you can't afford a full share.

Frequently asked questions