September 22, 2022
The digitisation and globalisation of the world economy have made a smooth international flow of capital and made investments possible. As a result, an investor in one country can invest outside their domestic market, enabling a foray into the global financial market. In this blog, we’ll inform you about the basics of global investments and guide you through the process of exploring the options for doing global investing from India.
What are Global Investments:
Global investments are a mode of acquiring financial assets and securities in different countries. An investor can expand their investment strategy to cover the global market to diversify their portfolio, earn higher returns, experience more stability, and so on. Some of the most common forms of global investments include stocks, mutual funds, debt securities, etc.
What are its benefits?
Portfolio diversification:
Shifting from domestic to global markets can prove very advantageous for your portfolio since it diversifies the investment stream geographically and reduces risk to a large extent. Even if one country’s market dips, the value of your entire portfolio will not be severely affected. Furthermore, due to the low correlation between different geographies, the chances of international market falls reducing your investment value are minimal.
Variety of investment options:
Investing in a foreign market opens up various financial instruments that might not be available domestically. For example, you can capitalise on the profits of high-value tech companies and trillion-dollar enterprises in the US by investing in their stocks.
Benefits of exchange rate fluctuations:
Currency depreciation can help an investor gain higher returns upon selling some stock. For example, if you purchased a US company share when the rupee was $70, you can sell it when it becomes $75 to earn more returns from your investment.
Better investment protection:
Many developed countries, like the US, have strict investor protection laws that safeguard investor capital. Hence, investing in such markets will help you monetarily benefit from this safety net.
What are its limitations?
Political and economic risk:
Transaction costs:
Currency fluctuations:
Invest via the Liberalised Remittance Scheme (LRS):
Direct investment:
Mutual funds:
A global market intrinsically brings a layer of geopolitics and a global political economy that can be an influential factor for your investment. In the case of poor bilateral relations between domestic and foreign countries, any political or economic decision could significantly impact the market movement. Such investments are also vulnerable to risks of global crisis, as seen in the Russia-Ukraine war.
Foreign investments can be more expensive to execute since they usually cost more than regular investments. It is advisable to go through stockbroker charges to assess the transaction costs involved in foreign investments.
While currency depreciation is an asset for foreign investors in India, currency appreciation can make foreign investments more expensive. If the rupee increases in value against the dollar, investors will pay more and earn less on every share trade.
How to invest globally?
All foreign investments are governed by the RBI’s foreign exchange rules and regulations. Under the LRS, resident Indians can invest up to $250,000 every financial year for capital and current account transactions. However, non-resident Indians don’t face any such upper limit.
You also have the option of directly investing in the foreign equity market by opening an overseas trading account with an Indian broker or with an international broker. You might be asked to maintain a minimum deposit amount for their capital requirements.
You can invest in international markets through mutual funds by investing in either a foreign or domestic fund with investments in overseas stocks. This option is especially feasible for someone without a finance background who doesn’t have the time to research the stock market but wants to diversify into international markets for better gains. Portfolio diversification is the best thing you can do with your investments and opting for global investment in India could be a beneficial strategy. Reach out to us to know more about how we can help you with your global investment journey.
