Any investment journey involves picking a good mix of asset classes and assessing one’s own goals. An investor’s risk profile and investment horizon are equally important. Another key aspect all investors are often told to keep in mind is diversification and asset allocation. Investing in a range of asset classes and diversifying one’s portfolio means a good risk-reward balance.
As an Indian investor, once your portfolio has the right mix and you have figured out your investment horizon, it is time to look at international investment. But why does international investment matter?
A chance to invest in renowned and respected growth firms
International investment allows you to invest in companies that are world renowned and offer products or services that are widely used and recognized. Many Indian investors today are consumers of products and services offered by global growth firms that they respect. By investing in such firms, Indian investors get a chance to have stakes in their favourite companies. It is also a good opportunity to invest in companies that have been on a growth path and have footprints across the globe. These could be companies that are futuristic or have been trailblazers. International investment gives Indian investors a chance to experience a slice of a bigger pie.
International stocks lend an element of diversification
Another reason why international investment matters is that it offers diversification. If an Indian investor picks a foreign stock, chances are that the risks in their portfolio owing to investment in local stocks may be balanced by the rewards that come with international investment. For instance, certain foreign markets such as the US are known to exhibit lower volatility than Indian, and by investing in such markets, Indian investors benefit.
Additional Read: Investing in International Funds for Portfolio Diversification
Indian investors can tap into global economies that are developed
International investment gives Indian investors a chance to invest in companies located in economies that are well developed and resilient to crises. Different economies or countries go through different market cycles and by investing in a foreign fund or stock, an Indian investor gets a chance to invest in an economy that is doing well at a time when the local economy may not be doing that well. Also, a time when the home economy is not doing well, certain developed economies may be a good option for consistent and strong results. Global investments also allow an investor in India to look at economies that are on the growth path and invest in them now to leverage their performance in the future.
A chance to invest in fractional shares
Indian investors have an opportunity to invest in partial or fractional shares, wherein you can invest in a portion of a unit or stock. Many Indian brokerage firms offer opportunities to invest in US fractional shares. You get a chance to widen your portfolio of stocks from different companies if you invest in partial or fractional shares.
A way to benefit from differences in currencies
By investing in foreign markets, an Indian investor can benefit from different currencies when your home/national currency loses a percentage of value and the foreign currency is performing better. However, the flip side may also be true so there’s always an inherent risk as with any investment.
So, how do Indian investors invest in foreign markets?
Indian investors would need an exclusive demat and trading account with a recognised brokerage house, for their international investments. Indian investors are allowed to invest to the tune of $2,50,000 in a financial year as per the Liberalised Remittance Scheme (LRS). Many well-known Indian brokerages allow for investments in foreign markets.
Indian investors needn’t necessarily buy only shares of companies but can also invest in international companies through mutual funds or exchange traded funds. The process of international investments through mutual funds is similar to investment in Indian equity mutual funds (with the exception of taxation aspect) with no further documentation required. It’s simple to comprehend, quick to execute and easy to understand in contrast to investment in direct equity of a foreign land.
Additional Read: Investing in different asset classes based on their risk
How are investments in International Funds taxed?
International Funds attract debt fund taxation, where the capital gains is added to your income if the holding period is 3 years or less and attract indexation benefit if you sell then after 3 years.
Summing up, global investment allows investors a chance to partake in the growth story of some of the biggest and widely renowned companies of the world. Also, it allows diversification and adds range to an investor’s portfolio. If you are an Indian investor and want to explore the option of global investment, you could take small steps and boost investments as you get a greater understanding of how global markets function. Investing globally also gives investors in India to focus on creating wealth and value over the long term.
Are you looking at investing in a foreign stock or mutual fund? Tata Capital Wealth Solutions offers you a range of International Mutual Funds across geographies – Global Funds, U.S. based Funds, Europe concentrated funds, Emerging Market Funds etc. Investing in any one of the geographies would be dependent upon your view on each one of the markets.