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Things to Keep in Mind When Adding International Investments to Your Portfolio
September 05, 2017
India’s contribution to the world GDP is a mere 3%. It means that about 97% of the total GDP is available to be tapped into and has a huge potential. Moreover, investing in overseas markets leads to a high level of portfolio diversification that has numerous benefits.
Advantage of International Investments
There is a reason why investment gurus emphasize on portfolio diversification. This is because when your investments are confined to just one or two segments such as mutual funds, stocks, bonds, etc. then the risk factor is also high. However, if there is a high level of diversification and your funds are distributed in a variety of investments then even if one of them slips into the red, the remaining investments will be unaffected. This concept can be otherwise understood by the analogy of not keeping all the eggs in one basket.
International investments take diversification to another level as these investments are unaffected by what happens in India which is a country well known for its political and geographical sensitivity. National events such as demonetization, GST, etc. can greatly affect the economy. However, if your funds are invested in foreign companies, then they will remain largely unaffected.
Important Things to Remember
International investments have their advantages. However, there are a few points that you must be aware of. These are:
- The government has capped foreign investments at $250,000 per year which is about Rs 1.6 crore at the time of writing.
- Tax applicability will be the same as that of debt funds if 35% of your invested funds are spent on international stocks.
- You are free to decide how much percentage of your portfolio you want to invest in overseas markets. However, be wary of the risks like currency volatility. Here is an example- say you have invested some money in a foreign market which is exchanged for a foreign currency at an exchange rate. However, at the time of redemption if the foreign currency weakens or Rupee gains strength, then your return could be lower than your actual investment.
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