Markets outside India offer interesting investment opportunities and a chance to diversify across currencies and countries
The fact that the wealth of Indian investors (especially High Networth Individuals and Ultra High Networth Individuals) is experiencing strong growth is well documented (individual wealth grew by 10.91% and the number of HNIs grew by 9.5% in India, as against the global average of 7.5% in FY17). However, almost all of the wealth of Indians is currently parked in domestic rupee denominated investments. It is estimated that international investments (including financial assets and real estate) comprise well under 1% of the total value of investments held by Indian investors.
It is also true that markets outside India offer many interesting investment opportunities and there is an established long term trend of depreciation of rupee (it has depreciated around 5% per annum against the dollar, from the highs of 2008 to the lows of 2018).
Both the above facts, coupled with changing social and demographic profile of HNI and UHNI investors, wherein they are more aligned to global economy making large quantum of direct and indirect expenses in foreign currency (kids' education, medical, business) makes it a compelling case for global diversification in the portfolio.
Routes for Indian investors to invest globally
The routes available for Indian investors to invest abroad can broadly be categorised into:
Investments in rupee through Indian Mutual Funds offering feeder funds route into International Funds Direct investments through the Liberalised Remittance Scheme (LRS), allowing each resident individual to remit $2,50,000 every year for portfolio investments.
Feeder funds by Indian MFs are a very convenient route to gain exposure to international investments, as there are no caps on the amount that an individual can invest and the legal compliance required is minimal. However there are very limited choices available across manager, currency and asset classes. This makes the LRS route a very attractive avenue to diversify globally and has been consistently used by HNIs for building global portfolios.
Some of the common investments being made through this route are buying real estate / apartments in cities like Dubai, London or Singapore, investing in startups like Uber and LinkedIn or creating a portfolio of high growing listed technology stocks like FAANG – Facebook, Amazon, Apple, Netflix and Google.
Global markets are more diverse, complex
While creating a long-term portfolio investors need to appreciate that global markets are far more diverse and complex than India, and financial products at times a little more exotic and opaque. Hence, while there is nothing wrong in making direct stock investments, first time investors in these markets will benefit greatly by entrusting their money to a basket of three to five well reputed fund managers with long-term established track record and what gets them diversification across multiple countries and currencies. Taking advice of wealth manager/banker to help select the right fund and doing some basic research on the internet on funds' performance could be good approach to make the start.
Avoid fads and trends
Another risk comes from the strong temptation of investing in upcoming trends and fads based on media frenzy and Whatsapp forwards without much of understanding of the same. A case in point was the rush for crypto-currency ICOs and crypto currency mining projects being showcased to a lot of gullible Indian investors post the run-up in Bitcoin prices.
Follow prudent investment approach
In conclusion, getting out of home county investing bias to explore investment potential across the world and to diversify portfolio across currencies and countries to hedge against any geopolitical risk is a prudent investment approach.
Anywhere between 10%-15% of one's assets outside India can be a good start for that. However the approach for investing oversees should be the same as the one used for creating domestic investment strategy – discipline, long-term approach and an undeterred approach to stay with quality investments and managers.
The writer is managing partner & head - family office, ASK Wealth Advisors
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