A beach house in Australia, bonds in France and stocks on the Nasdaq are all possible now for the Indian investor. Since the revision of the Reserve Bank of India policy, which allows an Indian investor to invest up to $100,000 per person every year abroad now.
It also means that a family of four can invest to the tune of $400,000 and a family of six up to $600,000.
And the good news is that there are abundant opportunities for the potential investor in foreign markets. However, traditional investment avenues such as equities and mutual funds are more accessible and transparent for individuals, who do not have the know-how to invest in other asset classes.
There are country funds like DWS China Fund or Lion Capital Malaysia, and broader funds like the JP Morgan Europe Equity Fund or Fidelity Latin America.
But before jumping the gun, you need to identify the reasons for investing and then, look for funds or other assets that are best suited to satisfy these needs. Here are some objectives that are common to most investors:
Ordinary portfolio diversification: You can diversify by allocating your funds in various economies. However, you need to remember that the exact mix in the portfolio that one should allocate in various economies varies from time to time and will continue to do so.
Historically, it has consisted of around 40 per cent in developed markets (the US and Western Europe), 40 per cent in emerging markets (the BRIC countries and others like Korea) and 20 per cent in potential markets (Vietnam and Thailand).
Emerging markets are considered the riskiest of all markets, while developed markets are the least risky. One of the main reasons for this is due to the flow of capital around the globe by international investors. This, sometimes, leads to high volatility in emerging markets. Money does not move out very quickly from developed markets.
Therefore, the best way of reducing your overall risk is by spreading your money across markets. So, the value of your portfolio will not fall unexpectedly, if a good chunk of it is invested in developed markets.
Growth investors: If you are looking for quick growth, then look at country specific funds focused on China, Philippines, Indonesia or Malaysia, which are fast-growing. Investing in commodities can also give you good returns. However, it's important to know that while developed and emerging markets do not rise together, they do tend to fall together.
Value investors: Value investing, is a very successful strategy over the long term. This approach entails paying as little as possible for the intrinsic value, measured by parameters such as earnings, book value, cash flow, or discounted dividends.
But, given the performance of value, relative to growth stocks globally over the last few years, there are now extraordinarily large and attractive disparities in valuations. This is exemplified by an undervalued economy like Thailand that is mired with political controversies but has performed well in recent times.
Buying specific stocks: Direct investment in foreign stocks is more difficult as you have to be convinced about a particular company's potential. But returns would be higher. So, if you believe that a company like Google will do well from the long term perspective, it makes financial sense to purchase it directly.
However, at present, most of the firms, which plan to offer these services, are grappling with the technicalities. Many of them are going for tie-ups with offshore intermediaries.
But if you want to start immediately, here are a few tips:
- Approach any foreign bank in India which has presence in the country you want to invest in.
- Contact your relationship manager and ask to coordinate with his counterpart in that country.
- Once the bank account is opened, you can indicate to them the investments that you would like to make.
- Alternatively, you can open an account in a foreign bank directly if you meet their Know Your Customer (KYC) norms
Through these accounts, you can invest in various mutual funds through intermediaries like fundsupermart (www. fundsupermart. com).
Intermediaries, such as fundsupermart are well equipped to handle such transactions. So sitting here in India, one can go online and make further investments through them.
There are a large number of investment opportunities available globally. A bit of research and homework will only add to your wealth.
