Investment: Is it good to diversify porfolio in terms of geography? Expert explains

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November 13, 2020 10:29 AM

RBI had introduced the Liberalised Remittance Scheme 2004, allowing every Indian resident individual to invest or spend up to USD 25,000 overseas annually. The limit has since been gradually increased and is now at USD 250,000.

international investmentYou can invest in fractional shares of top international companies like Amazon, Google as the current price of their ease share is very high.

Is it good to diversify portfolio in terms of geography by investing in foreign markets? Generally, Indian investors have a very small share of their portfolio in the overseas markets. Swastik Nigam, Founder and CEO, Winvesta, says this is in contrast to developed countries where 15-20 per cent foreign exposure is typical. Few of the factors contributing to the low foreign investments have been poor access, high costs and low awareness.

However, now there are several online platforms like Winvesta, which have made international investing simple.

Big benefit from geographical diversification?

“Global diversification offers new opportunities which are not accessible domestically. For example, many of the world’s largest tech companies are listed in the US. Geographical diversification also protects against the risk of a single economy, and the low correlation helps build a stable portfolio,” Nigam told FE Online.

How much you can invest overseas?

The RBI had introduced the Liberalised Remittance Scheme 2004, allowing every Indian resident individual to invest or spend up to USD 25,000 overseas annually. The limit has since been gradually increased and is now at USD 250,000. Nigam said that this limit includes investments in foreign debt securities, equity, and real estate as well as foreign bank account deposits. In 2019-20 over $1 billion was invested overseas through this limit.

Invest in fractional shares

You can invest in fractional shares of top international companies like Amazon, Google as the current price of their ease share is very high.

“A fractional share is less than a full share of an equity or ETF. Fractional shares enable investing in high priced stocks such as Amazon and Google as investors can buy as little as $1 of such stocks. In absence of fractional shares, a single Amazon share would cost over Rs 2 lakh at the current price,” said Nigam.

Should you invest in US stocks?

Nigam said that the US markets are home to some of the fastest-growing companies in the world. “Long term investors should look at building a diversified portfolio and not entry points for short term performance. Indian residents are also prolific consumers of products and services offered by US-listed companies. Many of our current and future expenses are USD dominated. It is thus important for Indian investors to consider US investments to hedge such future liabilities.”

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