Global Investment — An Unexplored Domain for Indians

Indian residents are spending more on traveling overseas & choosing international education more often than before. However, for us, there are limited domestic options when it comes to investing and saving. As a result, our future liabilities are increasingly growing on global currencies but the current assets are growing in domestic currency. We should expect our foreign expenditures to become a larger portion of our future liabilities as our travel and consumption of global brands increases. On the other hand, by limiting our domestic savings and investments, we risk creating an imbalance between our potential assets and liabilities.

Some of the world’s most well-known brands are currently unavailable for domestic investment. Apple, Samsung, Amazon, Netflix, Google, Facebook, and Microsoft are only a few examples. Even though we use their goods daily, their expansion has not been a part of our portfolio.

Have you ever wondered why ?

Following are some common myths about global investment among Indian investors:

• Indian investors are home-biased i.e. Investors tend to invest in their home country because they believe they have a better understanding of their stock market, thus overestimating the risk of investing abroad.
• There is a common myth among Indian investors that investing internationally is riskier and only appropriate for the wealthy.
• The general advice for a new investor is to “play it safe” and avoid taking risks. Also, Indian investors prefer to invest in cash deposits and gold rather than stocks.
• Another common misconception among potential investors is that investing in the stock market is a closed game reserved only for millennials.

We must not ignore the fact that the economy is cyclical, with growth and contraction periods. These cycles may be global, industry-specific, or restricted to a single country or region. The risk of being affected by a market downturn is reduced by investing internationally.

Want to know what you are missing out on by not investing globally?

• Portfolio Diversification is an investment strategy that suggests holding several investments that perform well at various periods to mitigate the impact of market volatility. When investment is spread around many countries, market uncertainty in one country has little effect on other investments. It also allows the understanding of a variety of global economies and markets.
• Currency risk - The behavior of currencies in comparison to other countries is one of the most significant factors affecting returns. Investing in foreign markets exposes you to currency fluctuations (appreciation or depreciation). By investing globally, portfolios have generally had the dual benefit of better markets and appreciating currencies.
• Tax planning - For almost all of us, tax planning is a strong motivator. Tax benefits arising from global investments are lawful and are part of a well-structured international investment structure.
• Life Goals - Invest in dollar-denominated financial products to plan for your children’s foreign education. Also, If you want to move abroad for immigration purpose, you can prepare ahead by making global investments.

However, we must also understand the risk factors:

• Transaction cost - Transaction expense, which varies depending on the international market you choose to invest in, is the most common obstacle to investing in global markets.
• Access to knowledge - Access to and availability of critical information is a problem
• Currency volatility - Let’s say you buy a foreign stock and hold it for a year before selling it. The foreign currency is then converted back into Indian rupees. Depending on the direction the domestic currency is going, this could benefit or harm your return.

Global investment does, in reality, offer both opportunities and challenges. Lack of involvement is primarily due to unfamiliarity and subsequent fear. There is no lack of global investment opportunities these days. Although these can seem to be complicated at first, they will gradually become clear as you put in the required effort, analysis, and review the data.

Don’t be limited by geography; there are numerous investment opportunities around the globe.