Global nest egg
By Tejas Bhope
March 8, 2007
In the past 10 years, the Sensex has risen 16% per annum, outperforming global stock indices. But the rupee has dropped an average 2.6% per year versus hard currencies. And, yes, at times the Sensex has plunged while other stock markets rose.
How can an investor guard against the falling rupee and against Indian stock volatility? The best hedges are investments abroad. Suppose you hold investments in a hard currency market where price moves are not coordinated with Indian stocks? Your rupee-returns will rise, and the foreign return may be high even when Indian returns are poor.
|Global Investment Funds|
|Dreyfus Premier Greater China Fund||69.6|
|Old Mutual Clay Finlay China Fund||67.8|
|ING Russia Fund||59.2|
|AIM European Small Companies Fund||42.1|
|T Rowe Price Latin American Fund||39.5|
|*1 Year on 13 February 2007.|
That’s the simple logic for investing abroad. But the Indian government has been slow to allow overseas investments.
However, on 20 December 2006, the RBI cleared investments of up to $50,000 per year abroad by resident Indians, raising the earlier limit of $25,000. The new rule allows you to buy stocks, commodities or real estate almost anywhere.
Now $50,000 is not a huge hardcurrency sum. There are few ready made options and, doing it yourself (DIY) involves tedious paperwork.
For DIY, after you’ve picked your investments, you must identify brokers and remit rupees. For that, you submit an application-cum-declaration form to your bank with details like PAN, source of funds, nature of investments, etc. The bank clears and transfers the cash.
Says Suresh Sadagopan, chief financial planner, Ladder7 Financial Advisories: “The process is cumbersome and discourages small investors.”
Sadagopan advocates overseas investments via funds. He says: “Investors can remit rupees and let the funds take care of research.”
Dr Marcel Laehn, head, Asset Allocation, BHF Bank (Germany), also suggests Indians could invest equally across index funds, tracking the MSCI World (global stocks), DJ Euro Stoxx 50 (EU), S&P 500 (US), Nikkei 225 (Japan) and MSCI Emerging Markets.
Laehn says this combo has given a rupee-return of 10% per annum over the last 10 years. While under-performing the Sensex, this basket has a low correlation with Indian stocks. So, it could yield a positive return and reduce the risks during an Indian bear market.
If you’re more aggressive, check out the list of Global Investment Funds, which offer high returns across many markets. Two other funds are available—Principal Global Opportunities Fund and Franklin Templeton India Equity Income Fund.
Shanker Sharma, vice-chairman, First Global, is gung-ho about direct stock plays. He says: “Our new service will enable investors to invest $50,000 in any global stock. Investors can remit money to our London account and transactions would be via the London Stock Exchange, punched in through online orders.”
A tailor-made real estate scheme is offered by UK Land Investment International (UKLI), a concern, which buys land in Britain and sub-divides it into plots that cost £13,200 (about Rs 11.5 lakh). The raised limit makes it possible to buy more or larger plots.
“Investors have an opportunity to buy plots in the UK. A few innovative projects are now in the pipeline,” claims Alex Walia, managing director, UKLI.
The intrepid investor can also explore speciality bullion and real estate funds. Right now, rupee debt returns are good. But an overseas FD in a currency that rises against the rupee may work.
If all this seems daunting, wait for more financial service providers to jump on the overseas gravy train.