K.P. Venkataramakrishnan
WHEN IT COMES to portfolio creation, one cannot ignore the importance of having a diversified portfolio. It is widely believed that the best way to create, conserve and multiply wealth is through diversification. The basic idea here is to have one’s capital spread across different industries, markets and/or financial products to protect your corpus from negative developments in a particular asset class. Most of our portfolios are concentrated in a single market and currency and lack foreign asset investments. Today, investors have the opportunity of considering geographical diversification as well.
Markets around the world perform differently every year. As a result, diversification across international markets may allow an investor’s portfolio to deliver better returns compared to domestic markets. Thanks to digital platforms and a variety of other innovations, the borders around investments have come down. Many investors want their children to study abroad and Indian rupee generally tends to depreciate over time. Investing in international assets would prove to be a good hedge against the rupee depreciation and may prove to be a good investment in dollar assets which would help fund the future foreign studies.
While at it, it is imperative to be mindful of the risks associated as well. In case of international investing, the risks associated could be market risk, credit risk, leverage risk, liquidity risk and interest rate risk. These risks are dependent on the current market scenario of the respective countries.
There are several ways in which an Indian citizen can take exposure to international markets, especially the US markets. One can directly invest by opening a brokerage account (say in the US) and start investing. Every year, an Indian resident is allowed to transfer upto $250,000 (per individual) under the RBI’s Liberalised Remittance Scheme (LRS). Apart from direct investing, investors can opt for options such as feeder funds, mutual funds or country specific ETFs.
While all of these options are available, investors often realise that they do not have the requisite knowledge as to which country to invest in, what is the nature of opportunities available in those countries, how to go about reallocating based on economic trends etc. Apart from all these, there are expenses on remittances that one should know about. Keeping all this in view, the easiest way to invest in overseas market is through Indian mutual funds that are investing abroad.
If you are an investor wanting to invest in the US markets in order to take exposure to global companies operating in sectors such as e-commerce, digital platforms and social media, then opt for a mutual fund which invests specifically in technology space or bluechip US names. On the other hand, if you are an investor looking to take exposure to various geographies through a single fund then consider investing in a fund like the ICICI Prudential Global Advantage Fund. This is a fund of funds scheme—an umbrella fund that invests in other mutual fund schemes/exchange traded funds (ETFs) that invest in international markets.
The fund invests across both developed and emerging markets. Given the lower co-relation between major economies it invests in, the risk element is reduced to a considerable extent. The scheme has a hassle-free approach and investors don’t need to take any stress of changing allocation between countries. The icing on the cake is that the scheme is tax efficient since there is no tax impact on rebalancing in the underlying schemes. Over the past one year, the scheme has delivered returns to the tune of 26.24 per cent.
Venkataramakrishnan is the founder of Viruksham Financial Services