Dictionary meaning of diversification is "Investing in a variety of securities, so that a failure in or an economic slump affecting one of them will not be disastrous."

Year 1997 was disastrous for far eastern economies. The East Asian Financial Crisis had left many poorer. All those who had their entire assets in their own country suddenly found themselves on brink of bankruptcy. This is because their entire investment across all classes was in single region and currency. When currency of their country depleted in value their assets also depleted.

When it comes to assets and investments most Indians also have our entire wealth in single currency - Indian rupee and in a single region "India". Our house, jewelry, car, stocks, mutual funds, bank deposits, retirement funds, insurance policies, everything is in Indian rupees.

On 4th February 2004, Reserve Bank of India, RBI, vide its circular # A.P. (DIR Series) Circular No. 64 notified Liberalised Remittance Scheme. As per the scheme resident Indians could invest upto US$ 25000 (US$ Twenty Five Thousand only) per year outside India. This limit over a period of time has been enhanced and currently it is US$ 200,000 (US$ Two Hundred Thousand only) per person per year.

Rarely any resident Indians have utilised this limit to invest aboard and diversified their assets/wealth. One of the main reasons for non-utilization of limit is the difficulty in operation and knowledge of processes. Today if an individual wants to invest outside India then he has two choices. Either he contacts a local distributor who is offering global investment products through his tie-up with an international distributor or open bank account in foreign country, remit funds in that account and then invest globally.

In both cases investor will have to adhere to local procedures of the country where money is eventually invested. Also there could be tax incidence. Even with countries where we have Double Tax Avoidance Treaty in place investor might have to deal with that countries tax authorities.

Above all since all investments are going to be in financial instruments domiciled outside India, none of the Indian regulators will have control over it.

Instead of leaving resident Indians in clutches of foreigners, Government of India may over a period of time bring entire global financial markets to India. To begin with our banks should also be allowed to open accounts for resident Indians in currencies other than Indian rupees e.g. a resident Indian can have two bank accounts. One can be rupee account and second could be foreign currency account. Reserve Bank of India should allow banks to transfer upto US$ 200000 or limit prevailing at the time of remittance from resident Indian's rupee account to foreign currency account.

Mutual funds should be allowed to sell foreign currency denominated funds. Similarly Insurance companies should be allowed to sell their global insurance products. Our stock brokers be encouraged to offer broking services on global stock exchanges. Imagine our stock broker instead of allowing trade only on BSE and NSE can at some point in time offer trade on NYSE, Nasdaq, LSE and many other global stock exchanges. Slowly allow Indian intermediaries to offer more and more global products at our door step. Resident Indians can transact their business through their foreign currency account for making and receiving payments.

In fact over a period of time we can even allow foreign nationals to use services of our intermediaries for their global investment needs.

This will benefit all. Firstly because transactions will happen in India, Government Of India will be able to charge the income so generated to tax. Secondly, offering global products will require enhancing knowledge about its features. This will push our intermediaries to educate themselves and create pool of local talent. Next it will create employment. Last but not the least, resident Indian will have ease of operation. Today when resident Indian opens account in a bank aboard, that bank gets customer. Tax authority of that country charges us income to tax, employment gets generated in that country and resident Indian has to undergo more hassles.

Similarly today when resident Indian invests in financial products overseas, SEBI, RBI, IRDA has no control over the financial product. However if foreign products get sold in India, even if Government decides not to regulate them stringently, as they are not manufactured in India they can at least monitor them.

- Gaurav Mashruwala

The author is a Certified Financial Planner. He may be reached at gmashruwala@gmail.com