Domestic retail investors are beginning to embrace financial assets more than real estate and gold. Mutual funds, direct stock investments, bonds and other saving-cum-investment schemes are finding more takers today. Traditional avenues like PPF, EPF and bank deposits have not been discarded. A well-diversified investment portfolio across different asset classes lowers risk. As retail investors are realising, all investments focused in one country may not be a good thing. For instance, successive problems in the NBFC sector have spilled over to other financial and non-financial companies. As a result, both debt and equity asset investments have suffered. With financial markets inter-connected like never before, a small problem in one corner of the domestic market can snowball into a bigger problem. This problem can be side-stepped with global investments. All country markets do not rise or fall at the same time. Therefore, it is a prudent to invest across countries from a risk management perspective.
Yes, Indian investors sitting in the comfort of their homes in this country can today invest in global stocks be it the US, Europe or Asia. Investing in global stocks get exposure to world-class companies having a global presence and run by quality management teams. Investing in global companies is a smart geographical risk mitigation strategy. In this article, we will explain how domestic investors can invest and gain from global stock investments.
One of the fundamentals of investing is diversification, used as a hedging tactic against any unforeseen scenarios. Historically, diversification meant buying properties, investing in gold and creating fixed deposits. Over the past decade, with the increasing number of demat accounts, Indian investors are moving towards creating a balanced portfolio - parking money in direct equities and mutual funds.
With a large number of Indians settled abroad, remittances in and out of the country have swelled. However, individual Indians have sent over $35billion overseas (via RBI’s LRS) since 2015 where most of this money was ‘spent’ rather than being invested. This can be attributed to the fact that Indian investors are constrained to local markets as investing in global markets involves expenses and cumbersome processes, enabling only Ultra-HNIs and institutions to benefit from cross border investing.
Today, there are various ways in which Indian investors can invest in global stocks. You do not need to go to a foreign country to invest in their stocks. You do not need to be a visa or residence permit of the foreign country to be able to invest. The average Indian retail investor can invest in global stocks quite easily. However, it has to be mentioned that foreign investments can be as volatile as Indian stocks. Additionally, there is risk of foreign exchange movement. International stocks exposure should be more than 15-20% of your portfolio if you are an aggressive investor who uses the MF route. Those who invest in global stocks directly or through mutual fund/ETF route are advised not to do trading. Have a minimum five-year investment horizon if you take exposure to global stocks, while regular monitoring is not discouraged.
Direct global stock investments
RBI’s Liberalized Remittance Scheme (LRS) guidelines allow an Indian investor to invest in global assets like stocks. Instituted by the RBI, the LRS is a set of policies that governs the maximum amount and purposes of remittance. Under the LRS, an Indian resident can annually send up to $250,000 abroad without seeking approval from the RBI. The LRS has made it easier for Indian residents to study abroad, travel and make investments in other countries. There are various ways in which you can directly invest in global stocks. The first is through an Indian brokerage firm, which has a tie-up with a global firm. In most of the cases, the only country you can invest in is the US.
For instance, HDFC securities has partnered with Stockal to introduce global investing for customers. Now, Indian customers can buy or sell shares of companies like Apple, Google, JP Morgan or Tesla or invest in thematic ETFs from Robotics to Pharma to Energy or just save money safely in the US for future education needs– all in just a few clicks.
HDFC Securities' global investing offering allows customers who can now make and manage investments in the US financial markets. This will not only be an opportunity to diversify investments internationally but also to invest in specific global growth stories or simply invest in popular US companies listed on NASDAQ. Multiple Indian bank relationships have been created on the platform to ease the process of LRS and reduce forex load on investors looking to invest outside of India.
Indians have lost out on the last decade where they could have made a small fortune for themselves investing in FANG stocks (Facebook, Apple, Netflix, and Google). They could have ‘counter-attacked’ periods of domestic market gloom by making gold and US Treasury bonds a part of their investment strategies. Hence, in an attempt to nudge customers of HDFC securities to benefit from the US markets, this unique proposition has been given shape. Through investment diversification in a developed market, one can expect to be slightly insulated from India-specific shocks (political shocks, economic, rupee crisis). Being an extremely well-regulated market with complete transparency and stringent disclosure protocols, the US markets can easily find a sweet spot in the Indian portfolio content.
Indian retail investors have open a US-brokerage account online, upload PAN card and address proof (Aadhar or Utility Bills), subscribe to an annual plan of choice and fund the account by remitting money through LRS from Indian Bank Account. Then, they can invest.
There are fintech platforms like Vested who allow you to invest in the US stocks. Many full-service Indian brokers have a tie-up with the foreign brokers, thereby making it simple to open your overseas trading account with their partner (foreign) brokers. This apart, few international brokerage firms like Charles Schwab permit Indian citizens to set up an account and trade in the US stocks and mutual funds.
You should consult a tax advisor and find about the tax implications of investing in other countries.
Best way to invest globally
The second way to have a global stock exposure is through domestic mutual funds and ETFs that feed their money into overseas mutual funds. From a diversification perspective, this is a better option because you can take exposure in a range of different markets. The direct equity investment option is mostly restricted to the US, but in the case of mutual funds route, you can take exposure in a range of markets like Europe, Emerging Markets, China, Japan, Brazil and other countries and regions.
Most of these domestic mutual funds are run by renowned fund houses like Franklin Templeton, ICICI Prudential, DSP, Motilal Oswal, Edelweiss, Aditya Birla Sun Life, Reliance, Kotak, HSBC, Invesco, and PGIM. Most of the funds collect money from Indian investors and send it to a global mutual fund which invests the money. There are a few mutual funds/ETF (exchange-traded funds) that invest in global stocks on their own by doing the research here.
Let us take a look at some of the prominent mutual funds/ETFs that can help you take global exposure.
Parag Parikh Long Term Equity Fund is a unique fund. The fund invests in both Indian and foreign equity securities. The fund hedges most of the currency exposure using currency futures. Its biggest holding is Alphabet (Google parent), and is also exposed to Suzuki Motor ADRs, Facebook, Amazon, Nestle, and 3M. The scheme uses its flexibility to invest a minimum of 65% in Indian equities and up to 35% in overseas equity securities and domestic debt/money market securities.
An extremely popular international fund is Motilal Oswal NASDAQ 100 Exchange Traded Fund. Though this fund invests in NASDAQ (a US stock index), it has over the years has delivered solid returns. Being an ETF, its costs are low. For those who do not want to take the ETF route (requires a demat account), the fund-house has last year launched Motilal Oswal Nasdaq 100 FOF (Fund of Funds).
Franklin Asian Equity Fund has been over 10 years now. This fund invests directly in Asian companies or sectors (excluding Japan) which have a long term growth potential across market capitalization. Its top holdings include Alibaba Group, AIA Group, Samsung Electronics, HDFC Bank, Tencent Holdings, Taiwan Semiconductor Manufacturing, BDO Unibank.
10-year old Edelweiss Greater China Equity Off-Shore Fund is an open-ended Fund of Funds scheme investing in JPMorgan Funds – with an investment objective to provide long term capital growth by investing predominantly in the JPMorgan Fund’s - Greater China Fund. Greater China Fund invests primarily in a diversified portfolio of companies that are domiciled in, or carrying out the main part of their economic activity in a country of the Greater China region.
Launched in 2013, the ICICI Prudential Global Stable Equity Fund is another open-ended fund of funds scheme. It seeks to provide adequate returns by investing in the units of one or more overseas mutual fund schemes, which have the mandate to invest globally. Currently, the scheme intends to invest in the units/shares of Nordea 1 – Global Stable Equity Fund – Unhedged (N1–GSEF-U).
Aditya Birla Sun Life International Equity Fund - Plan A is one of the oldest international funds and was launched in 2007. The fund has investments in stocks across the world without any regional bias. The fund house as engaged Standard& Poor's Investment Advisory Services LLC (SPIAS) to provide investment advice on the international portion of the fund. Current top holdings include McDonald's, Enbridge, The Walt Disney Co, Essilorluxottica and Yum China Holdings.
There are a few small international funds worth mentioning. One, HSBC Brazil Fund is an open-ended fund of funds scheme investing in HSBC Global Investments Fund - Brazil Equity Fund. It remains the only way to take exposure to resource-rich Brazil but is a high-risk bet due to the cyclical nature of Brazil economy. The Invesco India Feeder- Invesco Pan European Equity Fund is one of the options to get a large European exposure. This fund invests predominantly in units of Invesco Pan European Equity Fund, an overseas equity fund which invests primarily in equity securities of European companies with an emphasis on larger companies. Lastly, there is Reliance Japan Equity Fund, which is investing in equity and equity-related securities of companies listed on the recognized stock exchanges of Japan. The fund's current top holdings include Tokyo Electron, Shin Etsu Chemical, Nihon M&A Center, Trend Micro, Asahi Group Holdings, Mitsubishi UFJ, NTT Data and Toyota Motor.
Some domestic mutual funds take foreign equity exposure. For instance, IT sector mutual funds have the leeway to invest in foreign stocks that belong to technology companies. As a result, some IT sector mutual funds have exposure to Microsoft, Facebook, Alphabet (Google parent), Apple, Amazon and Netflix. (The writer is a journalist with 14 years of experience)