We are living in an increasingly global world, where borders are becoming virtual and one can access goods and services offered across the globe with greater ease as compared to the “GenX“.
Whether it is the latest gadgets, OTT episode, or something like Uber, Indian consumers have been enjoying the same level of access as the rest of the globe. As an Indian consumer, we are exposed everyday to global brands like Amazon, Netflix, Apple, Google and the likes.
For a moment if we disregard the restrictions imposed by the Corona era, everyone out there will agree with me that Indian travellers and students are becoming global too. We are exploring new destinations overseas and are participating in luxury and adventure travel with equal zest, also more and more students make their way into international schools and universities.
However, when it comes to investing and saving, we, as Indian residents, are often restricted to domestic choices.
We can summarize it as,”Our future liabilities are global, but the assets/investments are domestic”.
Part of this was by design, due to strict capital control laws that restricted remittance and conversion of the Indian Rupee to foreign currency. However, RBI has liberated this channel, and under the Liberalized Remittance Scheme (LRS), Indian individuals can remit and invest up to USD 250,000 (approx. 1.85Cr INR at the time of writing ) overseas per financial year.
Currently, the only challenging factor for poor international investment choices is the lack of a convenient and accessible platform to be able to do so.
Lets understand how you, as an Indian investor can build a global portfolio for yourself:
Determine Asset Allocation
The first step in building a global portfolio is to assess your risk tolerance and determine the right asset allocation. Depending on your risk tolerance, you can adjust their exposure to certain classes of equities and bonds that are more or less risky than others.
Investors comfortable with taking risks may prefer to build a portfolio that holds mostly equities and few bonds, while those that are more risk-averse may want to look at a greater percentage dedicated to bonds.
In order to understand the risk factor, the beta coefficient is a common way to quantitatively measure an asset’s level of volatility–that is, how widely its price swings over time compared to market benchmarks (like indices). Higher the beta-coefficient, usually riskier is the investment. Investors should also consider qualitative risk factors– like geopolitical risks and bond ratings.
Finding the Right ETFs
If you choose to invest in ETFs instead of building a global portfolio is to identify the best domestic and international ETFs. While an ETF’s expense ratio is important to consider, there are a number of other factors that shouldn’t be ignored.
Expense Ratio: Lower expense ratios are preferable since they automatically increase potential returns over time by reducing costs.
Assets/Liquidity: Some ETFs don’t have much trading volume, which can make them difficult to buy and sell at a good price.
Holdings: Different ETFs have different rules governing the stocks or bonds that they hold, which has a significant impact on their churn rate and bottom line.
Asset Class: Find ETFs for each asset class in your desired asset allocation. For example, Large Cap US ETFs, Small Cap Value ETFs, or Emerging Market ETFs.
Investors can find all of this information by visiting issuer websites and reading fund prospectuses, to ensure that you have all of the information you need to make an informed decision.
Building and Rebalancing:
The third step in building a global portfolio is to calculate the number of shares to purchase to achieve the correct asset allocation, ensure sufficient capital to reduce commission costs, and actually make the purchases to build the portfolio.
After the portfolio has been created, investors may also find it necessary to periodically rebalance their portfolio’s holdings in order to maintain the same asset allocations.
But before diving in the sea of global equities, there are few things to practice:
As much as it is important to know your risk appetite it is also important to understand what you are investing into. Smart investment requires research work and in case of global equities it becomes critical to understand how the region’s sectors interact to invest properly in it. Research into foreign markets may sound daunting at first, but it gets easier once you start.
Factors Affecting Global Stock Markets:
Doing the groundwork before investing is important and equally important is to understand the factors which affect the stock markets.
For example , the recently published job-related data had a massive impact on US stocks, which is a very rare case scenario in India.
Hence, it is important to understand the environment and the traders which highly affect the stock market.
Financial Institution Support:
Currently it is not a compulsion to have an account in a foreign bank to engage in global stock market trading or any other securities trading. Also, electronic fund transfer has made it very easy to transfer funds from one country to another.
Still, you need reliable banking partners in each country to enjoy quick transaction times and minimal fees.
Having a global investment portfolio is now within the reach of Indian investors – RBI has liberalized overseas investments, and opening an international investment account with ShareIndia is as simple as TAP and BUY with lowest conversion rates and brokerage.
Invest in the leading global stocks here.
Disclaimer: Any Advice or information in the post is a general advice for education purpose only and is not responsible for generating any trading profit for anyone, please do not trade or invest based solely on this.