By Abhishek Dev
The whole tenet of asset allocation lies in diversification. It plays a crucial role in creating an optimal investment portfolio that ensures the right kind and amount of risk for you while attaining your financial goals. An investment has three main components – Returns, Risk and Liquidity, and all three are correlated. Asset allocation is the balancing of these three components through investment across assets such as equity, debt, and gold to achieve a financial goal. It is primarily a hedging exercise that lets you mitigate risks from one asset through investment in other assets.
Global Assets or assets outside of your home country should be seen in this context. It provides currency, and country risk diversification and adds exposure to key asset classes globally. We Indians spend significant amounts overseas on Holidays, Overseas Education, Shopping, etc. However, we rarely invest outside. We buy Samsung and Apple Phones, we buy Zara and Gucci merchandise, we eat from Taco Bells and McDonald’s; why not own their stocks as well?
Also Read – How to invest in US stock market from India: All that you need to know about process, rules
Investing overseas comes with a lot of added advantages:
Currency Diversification
Historically, Developed Market currencies (i.e., USD, GBP, Euro, SGD etc.) have been appreciating against INR. Thus, investing in global assets held in these currencies would have added the extra returns of currency appreciation when you sell these assets and bring money back.
Exposure to Global Asset Classes
Global diversification & opportunity to participate in the performance of global asset classes across the US, Europe, Asia etc.
Investing in Largest Companies of the World
While the companies of our homeland are big in size, in comparison with the outer world, they are relatively small. Thus, Investing overseas gives us an opportunity to get exposure to the largest companies of the world.
Easy Access & Approvals
Digital platforms for easy investments; are allowed under the RBI Liberated Remittance Scheme (LRS). Feeder Funds are structured as local Mutual funds and are simple to invest in.
Also Read: US stock market offers unique opportunities for investors to diversify their portfolio
So how could a portion of our investments be made overseas? There are options to do so.
Direct Investments under LRS
Open a Global Trading account through RBI’s liberalized remittance scheme which allows each Indian national to remit up to USD 250 Thousand per year for various purposes including investments. Various wealth managers in India have working referral tie-ups with some global investing platforms (i.e., Stockal, Interactive Brokers, Exante’ etc.) which seamlessly allow Indian investors to open a global /US trading account and trade in global Stocks/Bonds or Global Mutual Funds. You should be mindful of Tax and costs while operating such an account.
Invest in Indian Mutual Funds that invest Globally
Direct Investment in Global Securities – Some examples are funds like Parag Parikh Flexi Cap Fund, which has up to 35% exposure to global stocks – mostly US Technology stocks.
Local Feeder Funds Investing in Global Mutual Funds – Some examples are:
Edelweiss Greater China Off-Shore Fund invests in JP Morgan Greater China Fund. Thus, your money is getting invested in another fund here, which is foreign-based and invests in companies which have operations in the Greater China region.
Franklin India Feeder US Opportunities Fund: This fund seeks to provide capital appreciation by investing in units of Franklin US Opportunities Fund, which invests in securities in the USA.
The Indian Fund route to global investing has some benefits, i.e.,
- Transparency and visibility of total costs
- Simplicity of Taxation at Individual investor level
- Benefits of Expert Fund Management
- Usually, no limits on amount of investment at individual investor level (unless the AMC/Fund choose to place such limits)
Thus, when it comes to Asset Allocation or Portfolio Diversification, investing overseas should be the first thing that comes to your mind. It not only helps in mitigating market risks but also gives you a chance to invest in your favourite brands. By investing in mutual funds your money is managed by professional money managers as well as themes that are emerging in foreign shores.
(Author is Co-Founder and CEO, Epsilon Money Mart)