Like all other countries, Indian investors also have a strong home bias – all their investments will be in India. But there are many opportunities for investments outside of India as well. Further, some global markets have done very well so it is worth exploring investment opportunities outside India too.
In the past, the lack of international exchange-traded funds (ETFs) and mutual funds made global diversification difficult for the average investor, but these days, with lots of opportunities there’s no excuse for the so-called “home bias”.
According to the International Monetary Fund (IMF), in purchasing power parity (PPP), terms in the world’s GDP India contributes only 7.98%, which clearly shows Indian investors have little participation in the overall world’s economic growth.
Two of the major reasons why people invest in international investments and investments with some international exposure are:
Diversification
International investing might help the investors to spread their investment risk among different foreign companies and markets in addition to different companies and markets.
Growth
In emerging markets. It takes advantage of the potential for growth in some foreign economies.
Here, we’ll take a look at how the average investor can build a globally diversified portfolio...
Ways of Investing Globally
Global Mutual Funds
International Funds invest in all countries exceptional of the country in which you reside. while Global Funds invest in all countries around the globe with no exception.
Exchange-Traded Funds (ETFs)
ETFs are a collection of securities that tracks an underlying index such as stocks, however, they can invest in different sectors.
Investors can choose between many different types of mutual funds or ETFs, including:
- International Funds can invest broadly across many countries outside India.
- Regional Funds invest in specific regions.
- Country Funds invest in specific countries.
- Sector Funds invest in particular sectors across multiple countries, such as gold or energy.
These are two routes using which investors can invest abroad.
There are numerous funds which are dedicated to investing in offshore assets, with some devoted to themes such as commodities, EMs, Global smaller cap companies, Debt mutual funds, National Pension Systems, Public Provident Funds, Bank fixed deposit, Senior Citizens' Saving Scheme, Real Estate, Gold. etc. Along with them, there are equity funds that invest the majority of their assets in Indian shares, while also investing a trivial part of their portfolio in global listed equity. The investor’s fear of the risks while investing abroad is about the asset’s level of volatility – that is, how widely its price differs over time. There is currency risk which restricts the changes in the exchange rate against the investor’s home currency. Investors should study qualitative risk factors – like geopolitical risks and bond ratings, and political risk can have serious effects on a nation's economy.
Offshore investing is an attractive idea, given the ease and the low cost through which it can be done through mutual funds. Additionally, it also includes diversification as well as provides access to some of the best-performing companies in the world. Let’s have a look at the other benefits involved in investing globally.
Benefits of Investing Globally
1. Better Choice
People want to invest in the companies of their choice such as Apple, Facebook, Amazon, etc.
2. Diversification
Investing globally helps in diversification. It can reduce the risk in your portfolio as the locals might not have a reasonable effect on the international markets.
3. Bigger opportunities
There may be better and more profitable opportunities available in international markets.
4. A Reduction in Taxes
Many international countries offer attractive tax incentives to foreign investors in order to attract their wealth.
5. Global Growth
Investing internationally gives a bigger benefit for more growth which also means an increase in return potential in overseas investments.
6. Protection
Many foreign financial institutions are able to protect your investments from confiscation and other threats. They are also concerned with confidentiality regarding your finances.
How to build your Portfolio Globally
- One needs to determine the portfolio asset allocation.
- Diversify within the portfolio to get better returns.
- The risk involved with various kinds of investment.
- Rebalance your portfolio regularly.
- Investors should create a diversified global portfolio.
Market-linked investments have the potential of high returns but they carry high risks as well. Fixed-income investments help in accumulating the accumulated wealth in order to meet the desired goal there are some investments that are fixed-income while others are financial market-linked. Both fixed-income and market-linked investments play a major role in the process of wealth creation.
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