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Go International in Investing

Sep 9, 2021 / Dwaipayan Bose | 34 Downloaded | 1705 Viewed | |
Picture courtesy - Freepik

It's 7 am; I get a reminder from Alexa to buy litter for my cat online. Here I go on Amazon and place my order. While I am browsing my Twitter feed for the latest news my Nescafe is brewing. With a hot cup of coffee, I start my day. Wear my smart watch and head out for a walk. While I am walking, I get a reminder on Microsoft Teams for my work call. Post work I look forward to connecting with my friends & family on Face book and then watch a movie for a while on my favourite OTT platform Netflix.

If you look around, our life is completely driven by US tech brands. To search anything-we go on Google, while we are travelling-we are on Google Maps and we always stay connected through Face book Technology has become an integral part of our life and we live with these companies is all I can say. But what if we are given an opportunity to invest in these brands. The first question might come to your mind is can you invest in Netflix, Face book, Tesla etc while you are in India. Let me give you the good news, you can invest in these brands via International mutual funds. These are mutual funds that invest in underlying funds of foreign origin, and they invest in these companies directly. By investing in this international mutual fund which is also called as offshore fund or Fund of fund, you can invest in these companies. These mutual funds are offered by asset management companies and to invest you can directly visit their website or through any aggregator platform or you can contact your financial advisor to invest in them.

You can invest with as minimum as Rs 500 SIP in these mutual funds via Systematic investment plan. International mutual funds are available in various themes basis sector and locations for example

  • Tech fund which gives you access to all the innovative disruptive tech stocks

  • China fund which gives you access to Greater China market i.e. China, Hong Kong and Taiwan.

What are some of the benefits offered by international investing?

  • Diversification of single country risk: Most of us tend to ignore single country risk associated with our home country. But as an informed investor, one should factor this risk while building our mutual fund portfolio. Country risk can manifest in various forms e.g. natural calamities, pandemics, geo-political developments (e.g. threat of war, trade wars, sanctions etc). You can diversify single country risk through international investments.

  • Diversify currency risk: Currency risk may not concern investors whose spending is only in domestic currency. But if you have or plan to have expenses in foreign currency e.g. for children's higher education in a foreign university, foreign vacation etc, then you will be impacted by domestic currency depreciation. For example- you are saving for your child's higher education in the US which will be paid in dollars. In this case, investing in US fund will help you to diversify your portfolio during rupee depreciation. For more understanding, you can watch this video by Radhika Gupta where she has simplified international investing for you.

  • Provides portfolio stability: There is a low or even negative correlation between returns of the different countries. The chart below shows annual returns of MSCI US, MSCI World and MSCI India (in dollar terms) Indices, over the last 10 years (ending 30th June 2021). You can see that MSCI India outperformed MSCI US and MSCI World in certain years. But in the years in which MSCI India underperformed, having MSCI US or MSCI World in your portfolio, would have reduced overall portfolio volatility and provided stability.

    Annual returns of MSCI US, MSCI World and MSCI India (in dollar terms) Indices, over the last 10 years

    Source: MSCI country indices (as on 30th June 2021). Disclaimer: Past performance may or may not be sustained in the future.


  • Exposure to global mega trends: The Indian stock market is still dominated by traditional industry sectors e.g. banking and finance, oil and gas, traditional IT operations / outsourcing, FMCG, Pharma, automobile, cement and constructions etc. However, in developed markets technology centric companies are market leaders. The Top 5 companies by market capitalization in the S&P 500 index (the index of the largest 500 companies in the US) are all technology companies e.g. Apple, Microsoft, Amazon, Alphabet (Google) and Face book.

    As seen in the chart below that the market cap of these 5 companies is more than three times (3X) of the market cap of all the companies listed on the National Stock Exchange. Popular themes which are emerging across the globe are robotic and artificial intelligence, electric vehicle, cyber security, cloud computing, e-commerce, social media etc. These themes have huge power of disruption and can transform industries. However, they are not yet present in Indian stock market. You can get exposure to these themes through international funds.

    Market cap of these 5 companies is more than three times (3X) of the market cap of all the companies listed on the National Stock Exchange

    Source: ycharts.com, AMFI (as on 30th June 2021). Disclaimer: Past performance may or may not be sustained in the future.


Investments in US Tech Stocks

US Tech Stocks present attractive investment opportunities for the following reasons:-

  • United states is the biggest economy of the world with a GDP of $20.93 Trillion (source: World Bank, 2020)

  • US stock markets (NYSE and NASDAQ) are the largest in the world. They are also the most diversified and mature equity markets.

  • The US has been and continues to be at the forefront of technology and innovation. Some of the largest technology companies are head quartered in the US and listed in US exchanges as mentioned earlier.

  • US Tech Stocks are at the forefront of the major technology mega-trends. Many of these stocks have gone on to become global giants e.g. Apple, Amazon, Microsoft, Face book, Google, etc.

Conclusion

There are several factors for you to consider international investments:-

  • Asset allocation: You can consider international equity as an asset class along with domestic equity, debt and gold. Asset allocation should be done according to your risk appetite and financial needs.

  • Taxation: Fund-of-Funds investing in overseas securities are taxed like debt funds. Short term capital gains (investing holding period of less than 3 years) are taxed as per the income tax rate of the investors and Long-term capital gains are taxed at 20% after allowing for indexation benefits. You should take taxation into consideration to make informed investment decisions.

  • Track record of fund manager: International investments require considerable expertise. Investors should check the long term performance track record of the underlying fund. You can find performance related information of the underlying fund in the Scheme Information Document.

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a onetime KYC process. Investor should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

Locate Edelweiss Mutual Fund Distributors in your city

EAML is amongst the fastest growing asset management companies, being an asset management subsidiary of Edelweiss Financial Services Ltd., one of India’s leading financial services group since last 21 years with a proven track record of quality and innovation. Edelweiss AML is present across 11 locations across the country. EAML offers a suite of differentiated asset management products and the unique knowledge proposition focusing on building a strong connect with Distributors and customers. At Edelweiss AMC, the aim is to come up with truly innovative ideas that doesn’t exist today and bridge the gap between what investors want and what the industry has to offer.

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