The 4.5 per cent problem with your portfolio

On March 19, the Sensex fell 3.26 per cent. Ten lakh crore rupees gone. Every Sensex stock red. India was not a party to the Iran-US war. We suffered anyway, because foreign money leaves every emerging market the moment global risk rises.

Meanwhile, defence manufacturers, cybersecurity firms, energy producers and shipping companies were making record profits from the same war. All listed abroad. None available to an Indian-only portfolio. You can be hit by a war you are not in, and you cannot own the businesses that profit from it. That is what an undiversified portfolio looks like.

Why it matters beyond one war

Indian equity is about 4.5 per cent of the global listed market. The businesses driving AI, semiconductors, cloud computing and biotech are not listed here. We do not have an Nvidia, a TSMC, a Microsoft or an ASML. If the great businesses of your lifetime are listed somewhere else, owning zero of them is a choice that will look strange in retrospect.

There is a statistical dimension too. Indian and US markets have historically had a correlation of roughly 0.5, meaning they frequently move in different directions. India's correlation with other emerging markets is about 0.9. We crash together. The diversification that actually works is not into other emerging markets but into developed ones.

And the rupee has weakened against the dollar in every decade since Independence. That is not a forecast. It is a fact. Any investment you hold in dollars picks up an extra 3 to 4 per cent a year in rupee terms. A tailwind most Indian investors simply give up.

The objection that died in 2024

For years, international fund gains were taxed at your slab rate, up to 30 per cent. That gap was real and punishing. The 2024 tax reform killed it. International funds are now taxed at 12.5 per cent on long-term capital gains. Same as domestic equity funds. On a 20-year SIP, this single change adds roughly Rs 11 lakh to an Rs 87 lakh corpus. You do not earn more. You just keep more.

What to do about it

Most investors should have 15 to 20 per cent of their equity in international funds. But the specific question of which funds are open, which ones are worth buying, and how to avoid premiums is trickier than it sounds because the RBI's overseas investment limit has shut several of the best options.

That is exactly what we are covering this Saturday, April 25, on Fund Advisor Live. Which international funds we recommend, how to buy them and how much to allocate. If you have been thinking about this and have not made a move, Saturday is the shortest way to turn the thinking into an answer.

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