Should Indian investors diversify their portfolio with global stocks?

It does not matter how well the Indian market does over the long-term, the whole point of investing internationally is diversification.

global stocks, diversification, US shares, from India, Indian stock market, US stock exchanges
For diversification to happen, investors should look at 15-20% of their portfolio into international stocks.

More and more Indian investors are waking up to the idea of diversification across international markets. As not all global economies move in tandem, investing a portion of funds into global stocks brings in an element of stability in the domestic portfolio. To an Indian investor, there are various international funds to choose from and most of them invest primarily in the US stock market. Further, there are international brokerage firms giving access to Indian investors to invest in US stocks and ETFs listed on the US stock exchanges.

Motilal Oswal Asset Management Company has recently launched Motilal Oswal MSCI EAFE Top 100 Select Index Fund, a first-of-its-kind fund providing investors an exposure to top 10 countries based on their weight in MSCI EAFE (Europe, Australia & Far East) Index. MSCI EAFE Index is designed to represent performance of 21 developed markets across Europe, Australasia and Far East, excluding the US and Canada.

Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company, in an interview with FE Online, talks about the reasons for investors to go global and shares insights while investing abroad.

On the back of the potential that the Indian stock market holds in the long term, how compelling is the reason for investors to diversify in global stocks?

It does not matter how well the Indian market does over the long-term – the whole point of investing internationally is diversification. It’s been proven that Indian markets and international markets tend to move in different directions. Hence, owning international stocks or funds can be very beneficial in reducing risk of the overall portfolio.

How much of one’s portfolio should one invest in international stocks?

For diversification to happen – investors should look at 15-20% of their portfolio into international stocks. A mere 5% or less does not offer any protection and hence investors are better off just investing in India.

Between US and Non-US markets (EAFE – Europe, Australia & Far East), how should an investor decide?

The investor should choose the US – as it’s the most important and largest economy in the world. Investors looking to buy some of the world’s best companies listed outside the US can look at the EAFE fund.

What makes Motilal Oswal MSCI EAFE Top 100 Index Fund a unique opportunity for Indian investors? Who should consider investing in the fund?

Motilal Oswal MSCI EAFE fund offers the top 100 companies within the developed market region – known for its political, financial and currency stability. It’s the biggest investment theme outside the US and is a great way to own some of the best global brands listed outside the US. There are times in history when this theme has outperformed India and US – hence an asset allocation approach makes sense while investing internationally.

Investors who are already investors in the US can look at this fund. Also unlike the US – where most of the growth has come from tech – EAFE is a lot more diversified across sectors, stocks and countries.

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