Diversifying Your Portfolio: Exploring International Investment Opportunities – Investing Abroad News

By Priti Goel

International investments are the ones made outside the domestic markets (or home country) and can offer several benefits such as diversification of portfolio, tapping opportunities in global markets, aid in minimization of risks, and expanded horizon for returns.
International investing offers a range of eligible options such as stocks, bonds, mutual funds, options, futures trading on international instruments and currencies. Let’s cover some of these options as currently available.

Invest in stocks, ETFs or active funds in different markets using the brokerage platform of either domestic broking companies or international brokers that offer services to Indian traders. This is a form of a direct investment and to be managed within Reserve Bank of India (RBI) Liberalized Remittance Scheme (LRS) limit of $250,000 per financial year for resident Indians. The brokerage, and platform cost of this option should be evaluated carefully.

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Invest in Mutual Funds in India that invest in foreign funds. Most AMCs (asset management companies) in India have international funds that invest in multiple countries through ETFs, index funds or securities outside India. This is form of indirect investment that provides indirect exposure to foreign markets without opening a brokerage account.

Invest in international equity funds, owned and operated by foreign experts to invest in securities in their home country. While there are RBI regulations around this, this is another way of investing in foreign market by relying on experts from those countries.

One of the other back door option is to invest in multinational companies (example – likes of big IT firms in India) where significant portion of sales and revenue are from an overseas or global market. This provides a good international exposure though it’s not necessarily a true international diversification.

While one should limit the exposure of one’s portfolio in the foreign markets to a percentage that one is comfortable with, but there are prominent advantages in considering diversifying using this option.

Take advantage of different time zones, and different market performances for better risk-adjusted returns

Traditionally, the rupee has depreciated against the dollar. So investment in US dollars can bump up returns by 2-3% at the least

Newer opportunities with newer markets provide a broad-based bouquet of investment options to choose from

While the above investment options are attractive, one needs to be wary of rules of engagements, drawbacks or risks of international investing.

Fluctuations in currency exchange can affect transactions substantially. Buy and sell rates of equity investments can vary. These fluctuations can impact the value of investments when converting profits or dividends back to home country in home currency. Such currency risks are usually managed by hedging techniques such as forward contracts or currency options. These instruments allows investors to lock the exchange rates. Currency derivatives allows tracking currency movements, is another option to leverage.

Investors should carefully exercise trades with due prominence to credit ratings of those investments

One of the biggest concerns is liquidity whereby an investor in India may not find a buyer for his sale of securities in Japan (example)

Political and economic turbulence, changes in regulations and disclosure requirements in the foreign country can greatly affect such investments

Accessibility of critical information related to foreign firms and markets can be a concern

There are tax implications as well that one needs to know about. It will depend upon residency, source of income, tax treaties between the countries, specific tax laws, etc, for which appropriate advice from tax professionals should be taken prior to making these investments.

International investing is like giving your money a passport to the overseas market.

(Author is Founder & CEO of Prisha Wealth Management Private Limited and a certified investment advisor)