In an increasingly globalized world, portfolio diversification is incomplete without geographical distribution of assets. A growing number of Indian investors are realizing this fact and are starting to take exposure to foreign companies.
It’s not just realization alone. Easy access is also a factor. Investment firms have taken a lot of initiatives in recent years to ease access to foreign stocks. As a result, Indian investors now have two options to invest in companies listed outside India: directly by opening account with foreign brokerages or indirectly through Indian mutual funds.
Investing through mutual funds is the easier way as investors are not required to open an overseas trading account and maintain a minimum deposit. This also saves investors from the hassles of choosing the right stocks for investing.
“Mutual funds are a better option as you just need to do a basic KYC to start investing. Investors don’t have to worry about picking stocks, rebalancing and taxation. It’s also easy to monitor. All in all, it’s cost efficient in every way for retail and small investors,” said Mumbai-based MFD Rushabh Desai.
Within mutual funds, passive products like ETF or ETF-based Fund of Funds which seek to track the performance of an index are probably better suited for investment because of low cost and transparent portfolio with a known methodology. Passive funds also minimizes the fund manager risk which can result in underperformance.
MFDs should make sure that their clients' foreign portfolio is well diversified too. Investors need to look beyond the US and Europe markets and allocate some portion to Asian markets. There are some overseas ETFs available in India like the Nippon India ETF Hang Seng which provide exposure to Asian companies beyond India.
