- As one of the fastest growing economies in the world, India is deeply connected to the global economic system.
- Despite this, India’s share in the world’s equity market is only three percent.
- This means that there is a vast global world to which Indian investors have yet to reach.
As one of the fastest growing economies in the world, India is deeply connected to the global economic system. Despite this, India’s share in the world’s equity market is only three percent. This means that there is a vast global world to which Indian investors are yet to reach, first to take advantage of global opportunities and second, to diversify their portfolios outside India. .
Siddharth Srivastava, Head of ETF Products, Mirae Asset Investment Managers Telling us the advantages of investing in the global market. He says investors can look to global markets for a number of reasons. They do not get exposure to investment in either a single country or multiple countries. Or, exposure to a specific sector or an emerging theme, which they may not get in the domestic market.
- What additional resources will the global investment raise?
Global investing provides additional wealth creation resources in your portfolio. This helps in creating diversification to avoid risk. Globally, different markets have outperformed in different periods. Winners rotate their investments to different regions of the world, as the markets change on a year-to-year basis, sometimes even with good and poor performers.
- Are US markets ahead of Indian markets?
In fact, if we compare the benchmark indices, the US markets have created more wealth for investors in their local currency over the past 3,5,10 years than the Indian markets. Even if we look at the rupee, their returns have been high. Here investors have to keep in mind that in the long term, the depreciation of the rupee and the strong depreciation of a currency like the US dollar leads to further increases in returns. And, it can be the opposite. Therefore, investors should not miss the opportunity to exploit such opportunities by leaving home, if it fits their risk profile.
- What are the different opportunities available in different geographic areas?
Yes. One important thing about global investing is that different geographies offer you different investment opportunities. The Indian economy continues to grow largely led by traditional sectors such as IT Consultancy, BFSI, Oil & Gas. Apart from this, globally, there is an emphasis on technology-based firms that are part of a variety of mega-trends that are stir-fry by their very nature. They are changing the way they work. Popular themes now emerging around the world include Robotics and Artificial Intelligence, Electric Vehicles, Industrial Automations, Block Chain, Digital Economy. These emerging themes are increasingly becoming a part of the portfolio of global investors. Investing in Indian equities gives you exposure to the age-old themes of the economy, so if you want to participate in such themes or mega-trends, you need to look to global markets worth investing in.
- What are the markets of developed countries more capable of?
Financial markets in developed countries like the US are quite capable of information. This makes it difficult for an active fund to outperform the benchmark index and that too on a consistent and post-cost basis. For example, as per the US-based SPIVA report for the year 2020, for the 11th year in a row, the Active Large Cap Fund has underperformed on an average against broad indices such as the S&P500. Even among feeder funds that invest in active funds, the risk of underperforming the benchmark index as well as the cost is high.
- ETF based Invest in Fund of Funds Suitable for this?
Passive products, such as ETFs or ETF-based funds of funds, that track the performance of an index may be more suitable for investment, as they have lower costs and a transparent portfolio with known methodologies. In addition, by investing in passive products, the investor can eliminate or minimize the risk associated with the fund manager, which often results in underperformance. ETF based Fund of Funds provides an opportunity to investors to invest in an ETF either in lump sum basis through a normal mutual fund or in piecemeal through SIP or STP.
- What is the first thing that investors need to know before investing in foreign markets?
In order to explore investment opportunities in foreign markets, investors should first be aware of their risk profile and investment goals. Choose a fund that matches your profile and goals and also takes cost into account. Ideally, the investor can start with small allocations (eg from 5 per cent) first and then gradually increase his allocations, if felt appropriate. Given the wide range of options available in active mutual funds and cost-effective passive products like ETFs, such investments are now easier than ever before.