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Investing globally: Options for Indian Residents

Investing globally-options for Indian residents

Investors in the 21st century should be well-informed and aware of different markets’ performance. Today, there are no geographical boundaries for investors, and they can explore investment opportunities in different countries and get good returns. If you plan to invest in international markets, it is essential to understand the need – why should you invest in the global market?

In this article, we will talk about the benefits of investing in global funds and the different ways in which you can do it.

Reasons why you should invest in foreign funds

Below are some reasons why you should consider investing in the international markets. You must not invest in them because others are doing. Understand the need and risk and if it is in line with your goals, invest in them.

  • Diversification: As a financial advisory firm, we always create a diversified portfolio for our investors. We also educate them on the need for the same. The reason is simple – you should not keep all your eggs in the same basket. In the investing world, you should have different financial instruments in your portfolio for diversification. By investing in international funds, you diversify your portfolio even further.
  • Risks and Returns: Some international markets have delivered better returns than India and may continue to do so. When you invest in such a market, you give yourself a chance to get higher returns. However, you must be careful while choosing the market. The risk will depend on the market conditions and macroeconomic factors of the country you are investing in. It requires expertise to evaluate the economies to invest in.
  • Inflation Hedge: Investing in global funds is also a good way to hedge against inflation.

How to invest in global markets?

There are different options through which you can invest in the global market. Before you invest in any form, you must understand the risk. Below are some options we suggest to our clients. The suggestion varies as per the client’s risk profile and investment goals.

Listed Stocks: Investors can pick an economy that they believe is stable. Once done, the next step is to invest directly in the best stocks in the country. For example, if you want to invest in US stocks, you can pick companies that have been consistently generating returns for investors. We help investors end-to-end with investing in companies from the international market.

Exchange-Traded Funds (ETF): Investing in direct stocks comes with a risk and is not suitable for every investor. Investors looking to stay invested for the long term and looking for low volatility can invest in foreign companies through ETFs around the popular index. ETFs not only give you the option to invest in equity but also in commodities and can further diversify your portfolio.

Active funds: These are the easiest way to invest in foreign funds. There are mutual funds available for Indian investors that invest in foreign companies. You get the option to invest in economies like the US, China, and other emerging economies. It works just like any other mutual fund. The difference is – the underlying asset in these mutual funds are not Indian companies but international companies or international funds.

Unlisted companies: Many unlisted companies in different geographies are profitable, and you may want to have shares of those companies. For example, if given an opportunity to invest in SpaceX, would you like to own the stocks of SpaceX? If you want to invest in unlisted companies, you must consult a financial service provider as it requires experience and expertise in investing in unlisted companies.

Private equity funds: Have you heard of the Medallion fund? It is one of the best-performing funds in history. Unfortunately, it is a closed fund and not available for retail investors. However, there are ways to invest in private equity funds.

When it comes to international investment, 99% of investors think of the US market. However, it is not the only option. Many world economies have the potential to deliver high returns to investors. They all should be explored before investing.

Pros and Cons of investing in global markets

Pros

  • You get the opportunity to invest in the fastest-growing markets.
  • You insulate yourself against the ups and downs of the equity markets in your own country.
  • You diversify your portfolio, reduce risk and get a chance to get good returns.
  • If you plan an overseas education for your child, investing overseas can be a hedge against currency depreciation.

Cons

  • Your investment is exposed to market risks that you may not be completely aware of as it may be hard to track all the developments there.
  • If there is a depreciation in the currency into which one has invested, it will have a negative impact on your portfolio.

Invest in other markets for diversification

There is no doubt that investors should consider the option to invest in other markets. However, they must be careful before making such an investment. It is always better to have a specialist for such investments.

Right Horizons, over the years has integrated international investments in the portfolios of its high net-worth clients to create a diversified portfolio. Get in touch with us, and we will help you create a portfolio that will minimize your risk and maximize your returns based on your risk profile.

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Strategies To Ensure A Retirement Plan With Regular Income

strategies to ensure retirement plan India

Bucket Strategy

Based on when you’ll need to access the funds, the bucket technique splits your retirement savings into three buckets. Its goal is to strike a balance between investment growth and easy access to your money. The first bucket is for your emergency fund and money you plan to spend on living expenses or large purchases in the next couple of years. These assets should be kept liquid in a high-yield savings account so you may access them whenever you need them, regardless of market fluctuations.

The money you plan to use in the next three to ten years goes into the second bucket. Put these monies into more secure investments, such as bonds, balanced funds or certificates of deposit (CDs)/debt funds. As you deplete the cash in your first bucket, you can sell or withdraw funds from part of your second bucket’s assets to replenish the first.

The third bucket can be for long-term requirements beyond ten years.  The money set aside in this bucket can be invested into more risky investments like equity that deliver a superior long-term return and help you beat inflation.   You can invest through equity mutual funds, Portfolio Management Schemes, direct equity or even Alternate Investments Funds under this bucket.

Systematic Withdrawals

If you adopt the systematic withdrawal technique, you’ll take out a fixed percentage of your nest fund in your first year of retirement and gradually increase it to keep up with inflation each year after that. The 4 percent rule, which states that annual withdrawals should not exceed 4% of your nest egg, is a typical rule of thumb you may have heard. You may customize this to about 5% or 6% if you have a higher risk appetite.  Do not keep this too high as you would need to increase this amount periodically to take care of inflation.  Ie.  Do not use the complete return that you are getting on your investments.  In initial years, start with a lower withdrawal rate so that your capital grows and can afford higher withdrawals later to take care of inflation.  Use an professional to help you achieve this if it becomes too complex for you.

Annuities

An annuity is a contract you enter into with an insurance company in which you pay a certain sum of money in exchange for guaranteed monthly payments for the rest of your life. There are two sorts of annuities: immediate annuities, in which you pay the insurance company a lump sum in exchange for monthly checks that begin immediately, and deferred annuities, in which you pay the business but do not receive payments for several years.  You could also look to invest into annuities through the National Pension Scheme (NPS) as well as an alternative.  It is ideal not to completely depend on annuities, especially since most of them do not provide liquidity and flexibility.  However, having part of it into a guaranteed or lower risk annuity can be considered for conservative investors or even to take care of your basic expenses.

A Combination Strategy

One may use a combination of the above strategies to achieve the best tax efficiency.  E.g.  Up to a certain extent you can use annuities as part of one of the buckets.  You could use a systematic withdrawal as part of your bucket strategy as well.   

Tax Efficiency

Different types of savings are taxed differently by the government, and recognizing these differences is crucial to keeping more of your money. It is important to understand the taxation of various investment avenues.  You may use options that are tax exempt like PPF and Insurance. Some avenues may be tax exempt up to a limit which you have to keep in mind.  Capital gains may be tax efficient based on the tenure and the type of investment (debt/equity).  Having your investments tax efficient can also help you manage with a lower corpus as you don’t have leakage due to income tax.  The strategy that you use can be depending on the capital that you have built.  Up to your basic exemption limit, you could use investment avenues that are not very tax efficient.  You can layer this with more tax-efficient investment options.

Why Right Horizons?

We are a leading Financial Advisory Company with branches across the country including Mumbai, Bangalore, Delhi and Chennai. Our aim is to provide our prestigious clients end to end financial and wealth management solution options that they can choose from. 

Right Horizons will take care of all your financial needs under one roof across a whole range of financial assets and services to choose from.   Our contrarian strategy, our deep research orientation, combined with a singular focus on long-term investments, ensures that consumers receive the most tax-efficient and risk-adjusted returns possible. Join our family and experience financial freedom for the rest of your life.