When it comes to investing, Indians have been restricted to only domestic companies. Experts say they should look at investing overseas as a diversification of their portfolio.
Investing in the time of COVID-19 has laid bare the challenges of having access to limited investment opportunities. Swastik Nigam, Founder and CEO, Winvesta, says, “Home-bias has clearly stung investors in India. Domestic markets are struggling, while the US markets have stayed resilient and are flourishing. Investors are now paying serious attention to overseas markets.”
Until recently, only HNIs and some sophisticated investors were able to invest globally due to the associated costs and complexities. As a result, only 0.1 per cent of India’s financial wealth is diversified globally. Nigam says, “There is also a lack of awareness and expertise in global investing, and investors expect some hand-holding for portfolio allocation. However, recent developments in this space have been able to mitigate many of these challenges.” Now with various investment platforms, investors can open their US brokerage account digitally.
Why should you look at US markets?
Industry experts say Indians should look at investing overseas as a diversification of their portfolio. Nigam says, “Indians are emerging as one of the biggest consumers of global brands like Amazon, Facebook, Google, and Netflix. However, when it comes to investing, they have been restricted to only domestic companies.”
Additionally, the US stock market accounts for over 50 per cent of the world’s stocks by market cap. He adds, “Around 40 per cent of the earnings of companies in S&P500 Index are from outside the US. By investing in the US markets, Indian investors get access to one of the world’s largest and most liquid stock markets.”
How much investment can be made overseas?
Individual investors can invest up to $250,000 every year overseas under the RBI’s Liberalised Remittance Scheme. After opening an overseas brokerage account, investors will be needed to fund it by remitting money from his/her bank account. However, experts say investors need to be wary of currency conversion and remittance costs charged by their bank. Nigam says, “An investor is also exposed to currency appreciation or depreciation by investing overseas, which has historically worked in investors’ favor.”
Who should look at investing overseas?
Accessing overseas markets is not an expensive or complex proposition anymore, as regulatory and technology changes have democratized international investing. Fractional shares allow investors with even small portfolios to invest in expensive stocks like Amazon and Google.
Investors, who are looking for long-term investments, and can handle volatility should look at investing overseas. Someone with future overseas expenses such as foreign education, travel, or retirement should also consider overseas investments to reduce Indian rupee depreciation risk. Also, investors who want to add large high-growth stocks to their portfolio could also consider investing in the US markets.