Do you know what India’s share of world GDP is? It’s just 3%. To you, as an investor, that means that 97% of world GDP remains untapped. But, today we look at this unexplored issue because of another pertinent reason. Diversification. Have you ever wondered if it’s wise to invest 100% of your portfolio in Indian stocks and bonds? True diversification also implies diversification across countries.
An average Indian investor’s entire life is based in India. She lives, earns and spends in India. And that’s precisely why she shouldn’t invest all her money in India. History has shown us that specific countries can be hit by various political, social, economic and ecological events that affect them alone or far more than the rest of the world. India is one of the world’s fastest growing economies and holds great promise, but that doesn’t risk-proof it from man-made or natural disasters. Events such as demonetisation can have a major effect on the equity and debt markets, which in turn might erode your wealth. But if you diversify your investments, you might avert part of those domestic risks.
What are the options?
There are 41 international equity funds in India right now. They include sectoral funds like Birla Sun Life Global Real Estate Fund, country-specific funds such as Franklin India Feeder Franklin US Opportunities Fund, and all-inclusive general funds like Principal Global Opportunities Fund. You will find the full list and details on this link. Then there are regular equity funds like ICICI Prudential Indo Asia Equity Fund or Parag Parikh Long Term Value Fund, which have some level of exposure to international equity. You can find the list below. You can invest in these funds quite easily by following the normal KYC procedure.
|Scheme||Assets in foreign equity (%)|
|Franklin India Technology Fund||28.89|
|Birla Sun Life International Equity Fund - Plan B||24.13|
|Parag Parikh Long Term Value Fund||23.49|
|Templeton India Equity Income Fund||22.39|
|Mirae Asset Great Consumer Fund||22.04|
|SBI IT Fund||12.1|
|SBI Contra Fund||11.36|
|ICICI Prudential Indo Asia Equity Fund||10.78|
|HDFC Large Cap Fund||2.99|
|IDFC Focused Equity Fund||2.84|
|IDFC Premier Equity Fund||2.84|
|Franklin India Prima Plus Fund||1.9|
|Franklin India Flexi Cap Fund||1.74|
|Franklin India Bluechip Fund||1.5|
|Birla Sun Life Dividend Yield Plus Fund||1.02|
|ICICI Prudential Dynamic Plan||1.01|
|Franklin India High Growth Companies Fund||0.78|
|HDFC Prudence Fund||0.18|
|Data as on 31st May|
The second option is to directly invest in foreign stocks. For that you will have to open an account with a brokerage firm that offers overseas trading facility. You would also need to intimate the RBI. Overall, the process is quite easy.
Things you need to know
- If you invest in a fund that invests more than 35% in international stocks, the taxation on capital gains will be same as that of debt funds.
- The maximum amount an Indian can invest abroad is capped at $250,000 per year, which translates to slightly more than Rs1.7 crore. There is no cap on your investments in international funds.
- There is no thumb rule as to how what percentage of your portfolio should be invested abroad. The idea is to diversify your investments.
- Make sure the underlying businesses of the foreign companies you want to invest in are strong and promising. Don’t diversify for just the sake of diversification.