Diversify Your Portfolio With International Funds
Our daily life is peppered with products made by foreign companies – smart phones, clothes, news, entertainment content and even socializing have an international zing to it. However, does your investment portfolio have this zing? It can if you start looking outside India and consider parking your funds in international companies. There are several benefits when it comes to international investing. To begin with it helps in:
Portfolio Diversification : Different countries across the globe have different sources of risk and return. Conse-quently, their performance also differs at any given point in time. However, it is important to note that in order to achieve true diversification you must not limit yourself to investing in only US’ technology stocks. There are several countries and regions across the globe that can provide you with optimal geographical diversification.
Access to Global Themes : There was a time when many global products were not available in India. The only way you could access them would be to purchase them when you went abroad or request relatives visiting from overseas to bring them. Things have now changed and you can buy many global products in India. It is similar with the investing story as well. There are many innovative global companies that offer access to new themes that are currently not available in India. For example, innovative e-commerce companies, firms focused on artificial intelligence (AI), semiconductors, etc. Since these companies are not listed in India, the only way you can benefit from their growth is if you invest internationally.
Enhanced Risk-Adjusted Returns : From the above two points it is evident that the inclusion of international investments can enhance the risk-adjusted returns of your portfolio. First, they help to reduce risk via diversification and secondly, they can help you potentially benefit from high-growth international companies.
Hedge against Rupee Depreciation : The Indian rupee has generally been weak against some of the major global currencies like the US dollar or the Euro. If you have some liabilities or payments that are denominated in a foreign currency, rupee depreciation can have a negative impact on your outflows. However, when you hold investments in a foreign currency, then a depreciation in the rupee vis-à-vis the foreign currency positively impacts your return. As a result, international investments act as a hedge against rupee depre-ciation.
However, directly buying international stocks is not without its challenges:
• Limited Knowledge: There is not much knowledge among investors about investment opportunities outside India. As an individual investor, it would be challenging to know and understand factors that impact different countries and regions across the world and then identify quality companies that can add value to the portfolio.
• Asset Rebalancing and Re-Allocation: You would need to be constantly ahead of the curve in terms of spotting changes in trends, identifying new trends, market movements, and then accordingly rebalancing exposure based on these changing dynamics.
• Regulation and Taxes: You need to be aware of and adhere to the various regulatory, taxation requirements in India and for each of the countries that you invest in. Keeping up with the rules across various geographies could prove to be challenging.
Ticket to International Investments: As a means to address each of these challenges, Indian mutual fund houses have international funds. These mutual fund schemes invest in equities or mutual funds of international markets. They either buy foreign stocks directly or they take the fund of funds (FoFs) route where they invest in mutual funds in a foreign country to gain exposure to international stocks. As a domestic investor, all you need to do is invest in such an international mutual fund and you immediately get exposure to the country, region or international theme of your choice. For example, through international mutual funds you can benefit from the growth in China.
Or you could gain exposure to commodity-rich countries or even invest in leading global companies listed in the US. The best part is that buying an international fund is as simple as buying a domestic fund. From a taxation perspective, interna-tional funds are taxed like debt mutual funds. Thus, if you hold your international mutual fund investments for more than three years, the gains are classified as long-term and are taxed at the rate of 20 per cent after indexation. So, if you are an investor looking to diversify your portfolio across geographies, international mutual funds will help bring global opportunities to your doorstep.
The writer is the founder of Staywealthy Investment Services
Email: info@staywealthy.in
Website: https://staywealthy.in