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By Dilshad Billimoria
Non-resident Indians (NRIs) want to seize worldwide investment opportunities, opening up a wider range of options across geographies. While India offers a plethora of investment opportunities, venturing into international markets can broaden the scope of diversification and reduce risks. This article sheds light on some intelligent investment options for NRIs with a focus on international fund of funds, Exchange Traded Funds (ETFs), direct equity investments, and the essential concept of diversification across global markets.
International Fund of Funds: A Simplified Approach to Global Investing
For Overseas Indians looking to explore international investing, international fund of funds provides a straightforward entry point. These funds pool money into other funds and act as a feeder, spreading investments across various countries, sectors, and types of assets. The main benefit of international fund of funds is their diversification, which is managed by experts who adjust the portfolio to align with global market movements. Further, Budget 2024 has made it favourable for investments in FOFs making long-term capital gains holding period reduced from 26 months to 24 months and the tax rate at 12.50%+Surcharge instead of Tax slab rates.
This passive approach frees Overseas Indians from the necessity of constantly monitoring and adjusting their investments. However, it’s crucial to acknowledge that this ease comes at a higher cost in terms of expense ratios compared to direct investments. Moreover, returns can be influenced by fluctuations in currency values, which can either amplify or diminish profits based on the direction of the exchange rate. For those who prefer a diversified, professionally managed portfolio without the intricacies of direct investing, an international fund of funds is a suitable choice.
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ETFs: An Affordable Way to Gain Worldwide Exposure
Exchange-Traded Funds (ETFs) have emerged as a favored investment option globally, and they hold considerable allure for Overseas Indians in search of cost-effective access to international markets. ETFs are investment funds that track specific benchmarks, such as the S&P 500 or the MSCI World Index and are traded like stocks on exchanges. This feature allows investors to gain exposure to international markets without the direct purchase of foreign stocks.
The primary advantage of ETFs is their lower expense ratios compared to mutual funds, making them an attractive option for those aiming to minimize costs. Additionally, ETFs offer liquidity and transparency, making it simple for Overseas Indians to buy and sell them on major stock exchanges. However, it’s important to note that the performance of ETFs is linked to the underlying index, making them susceptible to market volatility. Despite this, their affordability and ease of trading position ETFs as an excellent choice for Overseas Indians looking to achieve broad exposure to the global market.
Direct Equity: Constructing a Global Investment Portfolio
For Overseas Indians with a higher risk tolerance and a long-term perspective, investing directly in foreign companies can be a lucrative strategy. This involves acquiring shares in individual companies listed on international stock exchanges, allowing investors to be part of the growth of sectors or regions that might not be easily accessible through domestic investments and providing the benefit of asset classes, sectors, industries and opportunities that are not available in India.
Investing directly in stocks can lead to significant profits, especially in industries that are growing rapidly or in emerging economies. However, this method also carries a lot of risks. The stock market can be unpredictable, the value of currencies can change, and there’s a need for in-depth research, and advisory that needs to accompany and investors’ decisions. Moreover, the tax consequences of investing in stocks from other countries can be complicated and depend on the investor’s home country and the country of the investment.
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The Significance of Diversifying Globally
Diversifying globally is a key element of successful investing. By spreading investments across various countries, sectors, and types of assets, NRIs can lower the risk of putting all their eggs in one basket. This strategy not only helps to lessen the impact of any downturns in a single area but also provides opportunities to profit from growth in other regions.
For NRIs, diversifying globally is especially important due to the potential economic changes in their home country. Although the Indian economy is strong and expanding, it’s still affected by local factors that can influence investment returns. By diversifying globally, NRIs can shield their portfolios from risks specific to their home country and increase their chances of long-term growth.
Efficiency: Getting the Most Out of Your Investments
The cost of investments can greatly affect the returns over time, especially for investors looking at the long term. It’s essential to keep these costs low to maximize returns, and this is where Exchange Traded Funds (ETFs) and Index Funds shine. Known for their low fees, these investment options are perfect for NRIs who want to reduce their expenses and improve their portfolio’s performance. Additionally, the availability of online platforms that offer low-cost or no-commission trading has made investing globally more accessible and economical.
Investing Themes: Riding Global Trends
Another strategy NRIs can use to take advantage of global trends is theme-based investing. This strategy involves focusing on sectors or companies that are related to emerging trends, such as renewable energy, technology, or healthcare. While this approach can lead to significant profits, it also comes with a higher risk due to the concentrated nature of theme-based portfolios.
In conclusion, NRIs have a wide range of options to improve their investment portfolios by tapping into global markets. By carefully considering their risk tolerance, investment timeline, and financial goals, they can create portfolios that are well-aligned with their objectives. Whether it’s through international fund of funds, ETFs, or direct stock investments, global diversification is crucial for successful investing. However, it’s important for NRIs to do their research or seek advice from professionals before making any investment decisions.
(Dilshad Billimoria is the Founder, Managing Director, and Chief Financial Planner at Dilzer Consultants Pvt Ltd. Views expressed are the author’s own and not necessarily those of financialexpress.com. Please consult an authorised financial planner before making any investments.)
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