Feb 08, 2013, 10.03 AM | Source: CNBC-TV18
In an interview to CNBC-TV18 personal finance expert, Harshvardhan Roongta of Roongta Securities shared his reading and outlook on investing in international market.
Harshvardhan Roongta (more)
Principal Financial Planner, | Capital Expertise: Mutual Funds
Below is the verbatim transcript of an interview aired on CNBC-TV18.
Q: Is it advisable for investors to invest a portion of their savings in international markets? What category of investors would this apply to and how should they go about doing this?
A: We have noticed that it has always been a perception that investing in international markets is a prerogative of the High Networth Individuals (HNIs) only but that is not true. These days options are available in India itself wherein one can invest in international economies with as little as Rs 5,000.
Where is the need? If one look at the individual portfolio then one has always looked at allocations in equities, debt, real estate, precious metals. All these investments are in local currencies and they are also in the domestic economies. There is a point in case where a person would divest a part of his wealth in international equities. Just to keep in mind that these international economies that one is looking to invest into should have low correlation in Indian markets. The US is one such example.
There are few basic advantages that one could take advantages of is that if one is investing in international economies then one gain exposure in a global currency. If one is investing in US then he or she gain exposure in dollars as well. The other part is there are few global brands, which are not listed in India currently. Microsoft is one example, McDonald’s, Berkshire Hathaway. These are companies, which are not listed in India but they are global brands having presence all over the world. So, one get an exposure into companies like that as well.
There are certain sectors, which do not exist in India, aerospace being one of them. So, how does a retail investor take advantage of investing into these international economies while being in India? There are three primary routes, which one can take. The first option is one can invest directly into international markets. An individual is permitted to invest up to USD 200,000 directly overseas.
This is more of an HNI or a well-heeled investor category. The second option is there are Exchange-Traded Funds (ETF), which are listed in India. Motilal Oswal MOSt Shares NASDAQ 100 ETF is one such ETF, which is listed on Indian bourses and this actually tracks the NASDAQ-100 stocks. So, when one buys the ETF he or she is basically buying NASDAQ-100 stocks. The third option is mutual funds. One can go through mutual funds, which invest directly into equities listed on New York Stock Exchange (NYSE) or the NASDAQ. One of the examples is ICICI Prudential US Bluechip Equity Fund. The others, which are present in this category is Franklin US Opportunities Fund and DSP Blackrock has a fund. What happens with this is these actually buy stocks which are listed on the NASDAQ or NYSE. So there is a point in case wherein an investor should diversify up to a maximum of 10 percent into international economies.
There is one point of caution that an investor should look at, which is important to mention is the taxation. All these offshore funds or international investing is considered as non-equity investments so for taxation purposes these will be categorised at part with debt schemes in India, which is if there is a short-term capital gain it will be treated as income in that current year and taxed as per your slab rates or if there is a long-term capital gain, which is more than one year then there is 10 percent without indexation and 20 percent with indexation. So, this is a point, which investors should keep in mind before they go ahead in investing.
Caller Q: I would like to invest over Rs 15,000 per month in mutual funds, bonds or some investment schemes from the international scheme? Can you please suggest me international as well as Indian schemes for investments?
A: I would say for instance that if I am going to just suggest a particular product to you, you have to understand the nuances of those investments. If you are investing in equities keep in mind that you need to be invested for at least seven-eight years or even better if you can invest up to 10 year in mind. Nevertheless answering your query I would suggest that you do not park all your funds into the international market in one shot.
I would drop something for you, which has a little balance of each. One option is that you invest in a Motilal Oswal NASDAQ-100, which I have mentioned. It is an ETF, which tracks the NASDAQ 100 stocks in which you can park about Rs 3,000 to begin with. There is a foreign exchange fluctuation, which you need to keep in mind and understand. You split the balance amount within equity in the Indian markets, the bonds and you can have some gold into your portfolio as well. The other is HDFC Equity Fund in which you can invest Rs 5,000, SBI Dynamic Bond Fund Rs 5,000 and SBI Gold Fund about Rs 2,000. Review this portfolio in about two years from now and in case you get comfortable with investing in international markets even before that you could look at investing in ICICI US Bluechip Fund, which is a mutual fund route against the ETF, which I had suggested in Motilal Oswal. So just get comfortable with this in a year or two and if you are fine investing overseas even before that you can increase the exposure into the international markets before two years.