One of the biggest changes in the investment landscape in the past few years has been the emergence of international investing as an option for Indian investors.
According to Reserve Bank of India (RBI) data, Indians sent $19,611 million abroad in 2021-22, up from $12,684 million the year prior.
A resident Indian individual can send up to $250,000 abroad per financial year under the Liberalised Remittance Scheme (LRS) of the Indian government. Over time, the RBI has increased the limit. When the scheme started in 2004, it was capped at $25,000.
Investing internationally in mutual funds has been easy. The way it works is this: Mutual fund houses in India start a mutual fund scheme that collects your money here in India rupees, just like any other mutual fund scheme. Then, it invests your money abroad either by directly buying stocks, or through exchange-traded funds or other open-ended mutual fund schemes abroad.
Since you invest in Indian rupees here, this investment doesn’t get covered under the LRS.
As of October 15, there were 63 schemes dedicated to investing overseas, as per ACE MF data. Assets under management of overseas mutual fund schemes have grown by 124 percent on a compounded basis over the past 3-year period to Rs 30,678 crore as of September 30, up from just around Rs 2,743 crore as of September 2019.
A major part of the reason, says Srikanth Bhagavat, managing director, Hexagon Capital Advisors, which runs Hexagon Wealth, is growing awareness. Bhagavat was a guest on our Simply Save podcast, Moneycontrol’s personal finance podcast. He added that in recent years, several platforms have come up that have made it easier for Indian investors to not just invest abroad, but also made it possible to partake in the growth of global technology companies, whose products and offering we use almost on a daily basis, like Apple, Alphabet (Google), Facebook and so on.
“To top all this, along with the availability of the mechanism, we saw a fabulous bull run in the last decade in the US market that has caught everybody's eye,” says Bhagavat.
Here is what else he said about international investing, foreign equities and how investors can maximise their opportunity at taking part in global equity markets and bring about diversification in their portfolios.
“You have to be committed to the cause of diversification and not for making extra money. And if you're committed to the cause of diversification, you should be looking at all geographies. Why look only at the US equity markets? There are good businesses across the world. Europe and Asian economies have some great businesses, in addition to America. You must invest in all of these markets.”
“If you have the ability to research out companies, then you can go in for individual stocks and buy them. There would be quite a few who would fancy owning companies. Go ahead and own them. Just ensure that it's a smaller component of your portfolio. If you made a mistake, a small exposure won’t hurt you too much.”
“Otherwise, for the bulk of the portfolio, your choice should be a passively-managed (index) fund, especially if you go into territories or geographies where you do not have knowledge.”
“If you are a first-time investor, start by investing into familiar territories; that is India and Indian-specific mutual funds. Then, as you get familiar, you can invest abroad through the index-investing route.”
“I like investing globally. One way of doing this is to allocate your money in proportion to the market capitalization of various countries or the size of the economies of various countries. Invest around 10-15 percent of your portfolio in international markets.”
“Lay investors should avoid taking country-specific exposure. It is good to be diversified across geographies. For larger portfolios, high net worth individuals, where there's a willingness to take specific risk, then you can say take specific calls. And you can go overweight on those regions. For instance, you might fancy emerging markets, because you might feel that at the time, they are attractively valued. Or let’s say if Europe is going through turmoil and markets have fallen and you’d like to buy stocks cheap there.”
“You can sell your international funds, when you need the money. If you have invested in a single country, your risks are higher. You, then, have to follow the particular sector or country, its progress, valuations, geopolitics and so on. For instance, look at how things have changed in China. There is a threat to transparency, for instance, that might just be a reason to sell. If you understand the dynamics of a country and feel you are on the right track, then stay invested. But you cannot figure out what's happening in the economy, its politics, it’s best to exit.”
