Is it time to go global? Here are four strategies for investing in international markets right now.

Is it time to go global? Here are four strategies for investing in international markets right now.

Indian investors have recently started to show a lot of interest in overseas investments. The exceptional success of the US markets over the past few years is one factor in this. For context, if we look over the past five years (including 2022 YTD), US stock markets have beaten Indian markets in four of those five years.

The statistics’ basis is the performance of the national Morningstar indices. This demonstrated the benefits of global diversity, and as a result, the percentage of Indians investing in international companies has been steadily increasing. Several Indian mutual fund institutions created partnerships with overseas asset managers after spotting this trend and launching feeder funds in their own nation that give investors access to a range of international funds provided by their partners.

Six foreign funds were introduced in 2020, followed by 23 in 2021, along with ETFs and FoFs that were based on the same foreign fund. The securities market regulator, Sebi, decided to prohibit mutual funds from investing in foreign stocks going forward starting February 1, 2022, to comply with industry-wide overseas limits due to a sharp increase in the AUM of international funds driven by strong investor flows and strong global market performance from Q3 2020 onwards.

The regulator set a $7 billion total industry cap for MF investments in foreign securities. For funds that invest in international ETFs, there is an additional $1 billion cap. Initial expectations among industry participants were for the limitations to be immediately increased, but this hasn’t happened yet. What are the options for investing in foreign markets given this context? The many options still open to Indian investors are clarified in this article.

International mutual fund investments

As of the publication date of this article, Sebi had permitted mutual fund companies to accept subscriptions into foreign funds up to the investment cap as of the end of the day on February 1, 2022. Due to the significant downturn in equity markets throughout the world and fund redemptions, this headroom has been generated.

The total industry-wide overseas investment cap of $7 billion does, however, put a cap on the headroom. Investors might take advantage of this modest expansion of global mutual funds. Additionally, there is a $1 billion cap on funds that use overseas ETFs as their underlying assets. Investors can invest in funds that use international ETFs as their underlying funds since this limit is still accessible. However, the possibility is fairly restricted considering that there are now very few funds available on the market that invest in ETFs.

The Liberalized Remittance Scheme

The Reserve Bank of India is in charge of the Liberalized Remittance Scheme. It enables resident Indians to send up to $250,000 per person per year abroad, which may be used for a variety of expenses like travel, medical care, tuition, and other educational costs, as well as investments in equities, debt, or real estate. For investors looking to invest in assets denominated in foreign currencies for future costs that will also be incurred in foreign currencies as well as for the production of foreign assets, LRS investments are available. Today, there are several ways to make use of the LRS facility.

Through IFSC entities and investments

India Existing organizations that offer a platform for international investment include INX Global Access and NSE IFSC, which are located in GIFT City, Gujrat. The “Unsponsored depository receipt” being exchanged in this instance is the trading instrument (DRs). Each DR corresponds to a portion of a corporation’s share. The right to own one share in a foreign firm is granted to the investor upon holding a predetermined number of DRs.

However, these DRs can only be traded on the NSE IFSC, and the deal is in US dollars. Only 50 foreign equities are now allowed to be traded at the NSE IFSC. Similar to domestic stock markets, brokers assist all transactions on the exchange. The settlement cycle for T+3 is T+3.

India Global Access by INX INXGA employs several foreign brokers that make international investment possible, including Interactive Brokers. Through its platform, which offers a free single integrated terminal and a mobile application, you may invest directly in stocks and ETFs that are traded across 135 exchanges in 33 different countries using 23 different currencies.

Self-help options are provided by international or domestic brokers.

To invest in international stocks or ETFs, an Indian investor has the choice of working with a foreign broker or local brokers who are affiliated with a foreign broker (listed instruments). Overall, the process has been made simpler by moving the majority of it online. However, these goods’ DIY orientation is one element that results in somewhat lower average ticket amounts.

The current global equity market slump presents a terrific opportunity to buy international assets at discount prices. Given the uncertainty surrounding a rise in the industry-wide limit on investments by mutual funds into international securities, particularly at this time when the Indian rupee is under significant pressure against the US dollar, it is advised to use the LRS route for the creation of foreign currency assets.

However, compared to deposits made through international mutual fund schemes, LRS transactions need more initial paperwork and other procedures. Additionally, one must consider the fact that DIY goods need complete reliance on the investor’s understanding of international markets, which is a challenging task. But just a few companies offer a portfolio-based strategy for international investing, and in our opinion, they are the ones made for long-term investments in other countries’ marketplaces.

edited and proofread by nikita sharma