In acknowledgement of the huge interest in global investing, CIF 21 had a segment dedicated to ‘Global Investing - the need and opportunities’. The segment hosted a panel of eminent personalities from the financial industry - George Mitra (Founder & CEO Fintso), Suraj Kaeley (Mentor & Coach) and Anil K. Goyal (Founder & Principal Partner, AKG Associates).
Here are some of the key takeaways from the segment.
- Opportunities are huge - The domestic market capitalization of ~2.7 trillion dollars forms ~4% of the global market capitalization of ~87 trillion dollars. This hints at the scope of opportunities available in the global markets. Top 10 companies across various segments like technology, health care, bank & financial services, consumer and commodity are situated overseas. Global investing allows access to reputed brands like Apple, Coke, McDonald’s, Starbucks and Nike.
- Diversification is important - Indian markets had put up an impressive performance in three out of the five years during the period 2010 to 2014. It was the best performing market in the globe. But, the next five years saw the tables turn when the US replaced India. From a diversification standpoint, winners rotate and it is important to go global. Further, with the depreciating Indian rupee against the dollar, diversification can help to add 3%-5% to returns.
- Routes to global investing - There are broadly two ways for investing overseas. First through domestic purchase which gives a sense of broader participation through indices. This includes investing in a fund of funds and in certain funds that invest directly in the US stocks. There may be around 30 to 40 of such funds in India. The second mode is through the LSR (Liberalised Remittance Scheme) route which supports direct offshore investments. Accessing the overseas markets directly can give numerous opportunities even with small sums. For instance, the US forms ~55% of the global market capitalization and hosts over 2,000 ETFs, 2,800 stocks and alternatives like REITs.
- Taxation and reporting needs - Investors taking the LSR route create a brokerage account overseas. They must declare the foreign assets in the annual tax returns. Interest and dividend will be taxable like any other income in India. Capital gains are taxable at 20% net of indexation benefit. Offshore investments of more than 10,000 dollars (equivalent to Rs. 700,000) annually through LSR, are subject to 5% TCS (Tax Collected at Source). Banks issue a tax certificate in this regards and investors can receive the credit. Banks must also be reported once the money remitted through LSR is received back.
- Desirable degree of exposure - First time investors must be aware that there are risks and uncertainties associated in international markets, and must refrain from exposing a huge chunk of funds in the offshore markets. Depending on the personal appetite there can be an exposure between 10% and 30% in the portfolio. Subsequently, these holdings can be reviewed according to investor comfort and requirement.
To conclude, the framework applied for domestic investments can be extended to international investments as well. For instance, broad-based indices may be explored before investing in sectorial or thematic allocation, growth-oriented or value-oriented funds.
‘Global Investing - the need and opportunities’ was an extremely engaging and informative segment. Click here to watch the recorded session of the smashing trio.
