The global investing opportunity is here. The Reserve Bank of India’s notification to increase the limit of permissible remittance to $50,000 a resident individual per financial year is a significant step forward towards liberalisation. Banks can now ask for specific approval from the regulator to market overseas products.
Until now, Indian investors could invest in foreign currency deposits. However, due to insufficient familiarity with overseas investment options in general, investors gave this scheme a lukewarm response. Added to this was the fact that over the past three years, domestic markets have been on a bull run and investors have reaped high returns.
The two main arguments for investors to consider the global investing opportunity are the advantage of geographical diversification and access to a wider range of products.
The products range from simple forex deposits to retail forwards, from market-linked deposits to capital-protected structured notes, from simple global funds to emerging markets/ country-specific funds, from AAA bonds to junk bonds, etc. The key question for an investor to ask is how overseas products would help him meet his goals.
A simple example that comes to mind is the now-common ambition of an education abroad for one’s child. Assuming this is a college in the US, the fees would be paid in dollars. Would it not then be fit to start building a portfolio in this currency? Let us take another example of an investor who has already invested in the domestic market. For him, participating in other high-growth emerging markets such as Russia, Brazil and China only stands to reason. The opportunity extends to developed markets too. One can make a beginning with offshore mutual funds. In addition, investors can now also invest in real estate investment trusts.
Many of us believe that overseas investments are only for high net-worth investors. That is not true at all. One can deploy even limited resources in instruments such as offshore mutual funds to tap the opportunity. For high net-worth investors, derivatives-linked products such as market-linked investments or structured products and deposits are viable alternatives.
Whatever may be the profile, there is diffidence, and it is here that an investment adviser will step in. Not only should the adviser be able to inform and update the investor on the choices available, he should also be able to help fulfil the “last mile”, that is execute the transaction and ensure ongoing service.
To illustrate the power of global diversification, let us take the example of an investor who already has a mix of bonds and equities in his portfolio. What he may overlook though is the fact that his eggs are still all in the Indian basket! Given the relatively low correlations between the Indian and global markets, a globally diversified portfolio may in fact reduce risk and enhance returns.
(By Vidur Varma, Country Investment Director, Global Consumer Group, Citibank)
