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It's been a good year for global equity markets. With the key indices in several countries hitting their all-time highs, equity investors would have had some reason to cheer.
The returns have also been quite impressive. Dow Jones and S&P 500 have returned 15 per cent and 14 per cent, respectively, since the beginning of the year. Other markets like Germany's Dax and Indonesia's Jarkarta Composite have returned eight per cent and 17 per cent, respectively. In comparison, the S&P Sensex has returned barely 1.36 per cent.
Clearly, having an exposure in global markets would help improve returns of the portfolio. And, a number of fund houses have launched schemes - feeder and exchange-traded funds - that can be used to invest in these. While one can take the direct route, using $200,000 permitted by the Reserve Bank of India (RBI), one has to be more careful.
As Raghvendra Nath, managing director, Ladderup Wealth Management, puts it, "Diversification will reduce the risk in the long term, that is, an 8-10-year time horizon. Hence, it is important from a portfolio point of view."
Feroze Azeez, director and head investment products, Anand Rathi Private Wealth Management, says investors looking at investing abroad for the first time should start with a US-based fund. This is because the returns offered by a developed market like the US are more stable than those offered by emerging markets.
Also, if you are investing in developed markets, it is important that returns' expectation should be tempered because they could not give astronomical returns compared with emerging markets. It is possible to invest in global equity markets through mutual funds, that is, fund of funds, or even directly. If you are investing through mutual funds, there is no limit on how much you can invest, since it is a rupee-denominated fund.
Currency risk is one factor investors should keep in mind while investing in foreign equities. If the rupee appreciates, it is possible that your investments will see a decline in value.
Nath says the benefits of diversification override the currency risk in the long term. So, while the rupee may see some appreciation in the short-term due to demand and supply, in the long term, it will be driven by fundamentals.
You can invest online using a broking account, just as you invest in the Indian equity markets. But you will not have access to advice from brokers, since according to RBI rules, these intermediaries can only facilitate investment, they cannot offer advisory services to Indian investors.
Follow the rule of investing for the long term, at least 10 years, even in the case of foreign equities, to see meaningful gains. There are about 36 global feeder funds you can choose from. But, if you want to invest directly in equities, there are brokerages with tie-ups with foreign exchanges. As far as portfolio exposure goes, stick to 10 per cent.
