Allocating money across different asset classes helps you enhance your portfolio returns while reducing the overall volatility.
Kumarpal Jain, AVP, Product – Fintso, says, “To create a portfolio best suitable for their risk profile, an investor needs to understand the risk-return profile of different asset classes (such as equity, fixed income, global investments, gold, etc.) and create a portfolio with the right mix of assets.”
Factors to be considered while entering Global Markets
Large-scale globalization and digitization, experts say bring immense opportunities to invest across various geographies. “Global investments help to participate in the growth stories of global innovators and leaders that have the potential to generate higher risk-adjusted returns,” points out Jain.
However, global investing is associated with additional risk factors like currency and country risks. Sharp currency fluctuations can adversely impact returns.
Jain further explains, “Historically, the Indian rupee has depreciated against major global currencies like the US Dollar, Euro, Pounds, etc. The rupee depreciation increases the probability of earning higher returns on the portfolio.”
The Route and Investment Instruments
Industry experts say Liberalized Remittance Scheme (LRS) route is well-suited for investors to start investing in international markets.
Jain says, “By remitting the money to one’s global account, investors can open up a plethora of investment opportunities in global equity and exchange-traded funds (ETFs).”
Another approach to investing in global markets, experts say is through Indian mutual funds with a global investment mandate (offshore funds).
Direct Equity (Global)
Global equity means an equity position in a company traded on exchanges outside the home country. Experts suggest investors need to thoroughly research the business model, financials, and growth potential while making direct equity investments in global companies.
Exchange-Traded Funds (ETFs)
ETFs listed in the US market provide one of the best avenues to invest worldwide, excluding the home country.
“An array of ETFs is available in the US market with different investment strategies, themes, country-specific, etc. There are also some actively managed ETFs wherein the fund manager researches various aspects while making investment decisions to build a portfolio.”
Offshore Funds (India Mutual Funds)
A more accessible approach to diversifying across global markets is to invest in Offshore funds in India with an investment mandate to invest in international securities.
Jain explains, “Like all other mutual funds, SEBI regulates the functioning of offshore funds as well. Most offshore funds are managed as Feeder funds, with an underlying fund being an offshore fund/ETF dedicated to a particular theme, strategy, or country.”
He adds, “Investors can choose from various international funds based on their risk-return profiles.”