Title : Opportunities in international funds

 

Abhay : Why do we need to diversify beyond India? Don’t we have enough options available here already !

Sameer : While India is loaded with good opportunities, there is a strong case for international investments as well.
To begin with, we all know about FAANG Stocks… which represents Facebook, Amazon, Apple, Netflix, Google. Infact, FAANG has now become FAANGM with addition of Microsoft in the league. These companies are global monopolies in their own domain. Besides them, there are many more companies which are worth considering for investment. Let me highlight some for you:

    • Visa & Mastercard ….I don’t need to explain…they are the giants in electronic fund transfer
    • Activision Blizzard: You must have heard about “Call of Duty” video game. This company is the owner of the game…..and I can tell you that video games have a bright future ahead.
    • Samsung….again…no introduction required: …a very close second to Apple
    • Adobe ….that provides Adobe Acrobat, Photoshop and Lightroom
    • Tesla…Its debatable …but worth considering
    • Pepsi
    • Nike
    • Zoom Video Communications…the company that helped all of us during lockdown to communicate with friends and clients…

 

Today, we are consumers of all these names ….and the list can go on for another 100-200 companies which are….. ruling the world. If we are consuming their products & services, shouldn’t we be exploring investments in them.

I think there is a big case to look beyond India, ….though this doesn’t undermine the opportunities available here.

 

Abhay :  Aren’t these International investment more risky when compared to investing in domestic funds?

 

Sameer : I would say…initially..all unknowns look risky to us. It is our nature.. That’s why International equity also looks risky.
But, I think it is a myth that we all have been carrying for so long now. The world stocks are no more or less risky than Indian stocks. In fact, in many cases, they reduce the overall portfolio risk due to diversification.

Another very important factor to consider is that the global markets are largely decoupled.

Each economic zones have been performing in big divergence from the other. In 2019, US grew by 32%, China by 24%, and India by a small 8.50%. In 2017, China was # 1 with 42% growth, India was second with 29% and US was at 12%. In 2014, around Modi election, India was 25%, China was 7% and US was 14%

 

 

Abhay : What kind of options are available if I wish to invest? I haven’t heard of many !

 

Sameer : You will be surprised to know that there are 43 schemes available in India which can help you take exposure to international markets.
There are index funds, actively managed funds, funds that focus on Japan only, or US only, or Brazil, or China, besides global funds. There are funds for International Real Estate, Gold miners, Energy, Agri, Commodities, etc. There is no dearth of options.

Abhay :  Most of the countries have GDP rate far lower than India. Don’t you think that these funds will deliver lesser return?

Sameer : This is another myth that needs to be busted. There is little correlation in a country’s GDP and the stock’s performance if the company is global in nature and is innovative in products and operate in monopoly or oligopoly environment.

Let me give you three examples here of last 12 months:

  • Greater China (economic zone) has almost identical GDP growth rate like India. But the stock market performance over last 12 months has been 48.86% (absolute). This was despite that Corona virus originated in China.
  • World Gold Stocks Fund has delivered a 47% (absolute) performance over last 12 months. These companies are listed in US, Canada and South Africa. Their GDP rates is lower than India.
  • NASDAQ 100 index has delivered 43% over last 12 months. These companies operate worldwide having revenue generation from across the world.

There may be….. some overvaluation in some pockets,….. but fundamentals are good in these domains.

 

Abhay : I don’t have big chunks of money to invest. Can I still invest in International Funds?

Sameer : No big chunks are needed. You can invest the same way as you invest in any of Indian funds. It can be as measly as Rs 5000/-.

 

Abhay : What about taxation? Are they taxed differently than domestic oriented funds?

Sameer : Their taxation depends upon what composition of their portfolio is built up of international stocks. If a particular scheme has only 30% international stocks, then it shall be taxed like Indian equity scheme….which is most tax efficient.
On other hand, a scheme with 100% exposure in international stocks shall be taxed like Debt schemes….which also is not bad if you  have 3 years plus horizon of investment.

 

 

 

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By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

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