The reason you should consider global investments is that by spreading your money among several markets, you achieve what stock market theorists have been propounding for years--diversification and hedging risk by spreading it across a mix of assets and markets. Individual economies are subject to economic cycles. By investing in several economies at a time, your portfolio can earn smoother returns.
Besides reducing risk through diversification, global investing can also boost your portfolio returns. With no country managing to be at the top of the charts each year, the case for spreading your investments across countries definitely gets stronger.
On offer are three types of funds: those that allow direct investing into global markets; funds that use the feeder route to invest in an existing global fund; and lastly, fund of funds that invest in several funds to achieve international exposure.
Moreover, variety in international funds also comes from the fact that some of them invest in a particular region (say, China or South America). There are others that are commodity plays. They could be investing in gold mining companies or in agri-based companies, and so on. You even have one passive fund here. So, this is obviously a category for the sophisticated investor who knows exactly what kind of exposure he wants.
Many of these funds come with adequate track records that will give you a sense of how they have performed in the past. Select a fund that you are comfortable with.
However, like any other type of investment, investing abroad has its own set of risks as well. There is the risk of volatility in currency exchange rates. If the foreign currency in which your fund is invested falls in value vis-a-vis the rupee, then your investment returns will suffer despite the gains your fund may have made in the market.
There is also the issue of taxation that could prove to be a potential minefield. Since hybrid global funds invest 65-70 per cent of their corpus in domestic companies and the balance in overseas markets, investors in these funds are eligible for the tax exemption on long-term gains from these funds.
The capital gains from other funds that invest in overseas markets are treated in the same way as long-term capital gains from debt funds. In other words, if the holding period is less than a year, the profit is added to the investor's income for the year and taxed according to his tax bracket. If the holding period is over a year, there is a 10 per cent flat tax or a 20 per cent tax with indexation (which takes into account inflation during the holding period and reduces tax accordingly).
Following are the finest International funds, available to Indian investors:
Birla Sun Life International Equity Plan A DSPBR US Flexible Equity FT India Feeder Franklin US Opportunities ICICI Prudential US Bluechip Equity Motilal Oswal MOSt Shares NASDAQ-100 ETF