Assets under management in international FoFs increased to Rs 25,179.63 crore as on July 31, 2024, from just Rs 2,083.07 crore in July 2019. The number of folios, or investor accounts, in international FoFs increased from 1.30 lakh to 14.27 lakh during the same period (Source: AMFI).
While there has been an increase in investor interest in this category in recent years, there is still ample scope to take advantage of the benefits that the category offers.
India has seen a strong move towards equity investing, especially among the younger population looking for alternatives to traditional investments. India’s market capitalisation has risen to $5.29 trillion as of August 13, 2024, making it the fourth-largest market. (Source: BSE)
The equity culture among retail investors is just beginning and there is still significant growth potential. In a global context, India’s market cap is around 10% of the US market cap of $55 trillion as of June 2024. (Source: S&P Global) Global market The market capitalization is approximately $110 trillion by the end of 2023, which means that India stock market The US dollar accounts for around 5% of the overall global stock market. Investors with sufficient exposure to Indian stocks might consider allocating a portion of their savings to global stocks. This can provide exposure to unique themes and companies not available in India, such as luxury goods, video streaming, gaming, e-commerce, and globally recognized brands. In addition to the benefits of diversification, investors with dollar-oriented goals, such as overseas travel or especially children’s education abroad, can benefit from dollar exposure. While the currency impact can go both ways, over the past five years, the dollar has appreciated by 20% against the INR, benefiting Indian investors in these global funds of funds.
The industry offers a wealth of options, including active, passive, thematic and country-specific strategies for investors seeking global diversification. As of June 2024, there are 55 international investment funds available. Choosing the right strategy can be overwhelming for investors new to this category.
While it is always recommended to consult a trusted advisor on what best suits your specific needs, for first-time investors it would be best not to risk their capital on very specific themes and instead would be better off investing in a diversified global fund. This benchmarked and region-agnostic approach ensures that investors can invest in any geography and company across all sectors.
Global funds can also help diversify asset classes. For example, real estate investment trusts (REITs) and real estate can provide exposure to themes such as data centers, shopping malls, hotels, resorts and entertainment, and commercial real estate through real estate investment trusts (FoFs) offered by mutual funds.
These funds provide a liquid, diversified and accessible channel for individual investors to invest in a completely new asset class, such as real estate.
As the saying goes, “don’t put all your eggs in one basket.” It makes sense for investors to diversify their investments beyond Indian stocks, adding a global dimension to their portfolios.
Global markets often move independently, so a slowdown in one region can be offset by stability or growth in another. Exposure to diverse geographies ensures that a portfolio is not solely dependent on the fortunes of a single market.
In an increasingly interconnected world, the opportunity for Indian investors to diversify their portfolios by investing in international markets has received another boost thanks to the recent tax change.
While the Indian market presents ample opportunities, looking beyond national borders can help mitigate risk, provide protection against local currency fluctuations and achieve diversification. Being a global citizen and investor is also a positive.
(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of the Economic Times.
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