Global Equities: Globally, many types of innovations are happening or new technologies are coming which affect our daily life. All of them also have importance in terms of investment. As of now, there are very few innovators listed in the Indian stock market. India may be the 5th largest economy, but the market cap here is only about 2.1 trillion dollars, while the rest of the world has a market cap of 90 trillion dollars. In such a situation, if you do not invest in global markets outside India, it means that you are ignoring the opportunity which is about 43 times more.
Why investing in global equity is beneficial
First of all, let us consider why one should invest in global equities i.e. the global stock market. Risk is associated with investment and this risk cannot be eliminated. But less can be done by diversification. Diversification of investment in all types of assets is the core of risk management.
Investing in global funds/stocks also helps you to take advantage of the depreciation in the rupee. In the last 35 years, the rupee has weakened at an average of 6 per cent every year. If you are preparing to teach your children abroad in the next few years, you may have to pay more due to rising fees and rupee depreciation.
Investing in global stock markets is comparatively new for Indian investors. The journey is almost the same as the way an investor invests in equity mutual funds. There is such a class of investors in the country, who have invested in many cycles and are now comfortable with mutual funds as a concept. They are now beginning to discuss such strategies as to bring diversification into the portfolio beyond equity and debt.
How to take advantage of currency as an asset class and how to take a stake in such global businesses which are not represented in the Indian Stock Exchange. Now more and more people have started to believe that the fluctuations in the markets are not only due to domestic reasons but also due to fluctuations in global markets. The only way forward is to have your portfolio denominated in as many asset classes as possible. For this reason, the attractiveness of investment at the international level is increasing.
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Invest directly in Global Equities
There are many advantages to investing directly in global stocks such that the investor can focus on a portfolio of select stocks (from one share to 10 shares) according to his understanding, convenience and understanding. He has complete control over it and it seems an easy option. But it can do only that which is well-versed in the stock market. In addition, he should have the capabilities to recognize and monitor such global events that may affect his shares. Such an investor should also have the ability to deal with compliance and regulatory issues. For example, in the Schedule FA of the Income Tax Return (ITR), it is mandatory for the investors to give a detailed description of the foreign asset they hold. Similarly, under the Liberalized Remittance Scheme (LRS), there is a limit of sending only 2.5 million dollars per person per year.
Investment through mutual funds
On the other hand, investing in a mutual fund (be it an international fund of funds or feeder fund) has many advantages, such as-
- Investing in these funds is seen in the same way as investing in a domestic fund. There is no additional rule for them, as is the case with investing in shares.
- Liberalized Remittance Scheme (LRS) is not applicable to them.
- These funds are managed by experts who have the expertise, technology and global reach to identify, analyze and monitor stocks and portfolios.
- Generally, mutual funds have many stocks belonging to many countries and different industries (in the case of active funds, this number is 30 to 50 shares), which would have diversified geographical regions, sectors and currency. is.
Some negative points too
However, there are also many disadvantages of investing by mutual funds, as the applicable NAV comes after one day, there is currency risk, keeping it below three years levies long term capital gains tax.
Overall, it can be said that it is better for small investors to invest in global stocks through mutual funds than to invest directly in stocks. More advisors advise investors investing in equities for the first time to invest in diversified equity funds. The first option should be put in those funds which invest worldwide. Likewise, prudent high net worth investors, ie large investors with sufficient resources and who can access all types of reporting and research, can invest directly in stocks or other equity options along with rupee-dominated global funds. According to LRS which is available to them.
(Author: Srinivasa Rao Ravuri, CIO-Equities, PGIM India Mutual Fund)
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