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All about global investing

For over a decade, Indians have been global consumers. It’s time to take the first step to becoming global investors. We show you the options abroad.

twitter-logoTanvi Varma and twitter-logoNarayan Krishnamurthy         Print Edition: January 10, 2008

If you have Rs 20 lakh to invest, you could own 800 shares of Coke, 71 of Google, 1,395 of Microsoft, 1,342 of GE and 1,754 of Cisco. And you don’t have to live in the US to do this; if you’ve got the cash and if you’re a resident Indian, you can trade on global stock exchanges from the comfort of your home.

In popular imagination, the only people who can make money abroad are the super rich, film stars, and, in the last decade or so, techies. Over the next several pages, we show you how this is not true.

You can buy and sell equities on the major stock exchanges in New York, London or Japan, or you can buy mutual fund products that are available only in Europe, or you can buy a studio apartment on the outskirts of London.

Encouraging overseas investment is the Reserve Bank of India (RBI), which has increased global remittance limits twice in the past one year, to $200,000 a year or roughly Rs 80 lakh at today’s exchange rate. With each increase in the limit, the options to invest in have correspondingly risen.

Today, the options available to invest abroad are plenty; you can open a bank account, invest in a mutual fund based out of India or abroad and even invest in companies in exchanges that allow you to invest as a global investor. The beauty of this is that you don’t have to wait until you have a million dollars.

You’ll learn a lot by investing even a few thousands in domestic mutual funds with overseas exposure. The reason you should consider global investments is that by spreading your money among several markets, you achieve what stock market theorists have been propounding for years—diversification and hedging risk by spreading it across a mix of assets and markets.

Global Investing

And this begins to make even better sense if you’re among the tribe of investors wondering when the party on the Indian bourses will come to a sudden end. Apart from hedging, global holdings could also prove hugely profitable. This is particularly true now, when cross-border acquisitions are a matter of course.

Is everything really so rosy? Not quite. Investing abroad comes with its share of problems that you must take into account. The most obvious drawback is that this is not for those with weak stomachs. Look at how global indices have performed over the past year and you will see more peaks and troughs than you might be comfortable with.

Investors with a stronger appetite for risk can afford to ride the roller-coaster. But if you cannot take kindly to extremes, it might be a good idea to shun from equities and stick to global mutual funds.

Another problem area is the fact that the RBI has increased the “remittance” level; the apex bank is not calling this an investment limit, and this wariness could possibly spell trouble some years down the line. Experts are also divided over whether this remittance limit includes what is spent abroad.

This might not be a problem now, since the limit is large enough to not make a difference to the average traveller and consumer, but if this limit is reduced for any reason, it could lead to some heartburn if nothing else.

Taxation is another area that could prove to be a potential minefield. Those huge profits you might make on Google, for instance, could be whittled down to nothing if you end up paying tax on it in two countries. The way out, of course, is to keep track of the tax laws of India and the country you’re investing in.

Then there’s the matter of investing in commodities. “Individuals are not allowed to trade in commodity markets unless they are seeking to trade in the spot market,” says Pritam Patnaik, associate vice-president, Kotak Commodity Services.

Despite this, some financial intermediaries offer investors the chance to trade in commodities futures. These could be skirting the law, so check before you get into something like this.

Once you have some idea of the risks and benefits of global investing, make an informed choice about whether you should enter this investment arena. You could make a cautious start by investing in an Indian mutual fund that invests in global stocks.

As your confidence grows, so will your exposure to the global markets. And then you can take your place among the growing tribe of truly global investors.

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