Going Global: How to Invest in World Markets from India

When you’re building wealth through equity investments  spreading your money across different countries can protect and grow your portfolio in ways that staying home alone cannot.

Think of it like running a business in multiple cities. If one city faces economic troubles, your other locations keep generating revenue. Global investing works similarly. When Indian markets stumble, your investments in American or European companies might still be growing.

1. Why Global Diversification Makes Sense

Indian markets, despite their growth potential, represent just about 3% of global market capitalisation. Limiting yourself only to Indian equities is like shopping at just one store when an entire mall is available. You miss out on companies like Apple, Microsoft, or Nestlé that have been creating wealth for decades.

Global diversification reduces concentration risk. During the 2008 financial crisis, while most markets fell, some emerging markets and sectors performed better than others. Similarly, when COVID-19 hit in 2020, technology companies worldwide surged while travel and hospitality sectors struggled globally. Having exposure to different markets and sectors helped investors weather these storms better.

Currency diversification is another benefit. When the rupee weakens against the dollar, your foreign investments become more valuable in rupee terms. This natural hedge protects your purchasing power over time.

2. Different Ways to Invest Globally

Direct Investment Route You can directly buy shares of foreign companies through international trading accounts offered by Indian brokers. This gives you complete control over stock selection but requires significant research and higher minimum investments.

Mutual Funds and ETFs International mutual funds and Exchange Traded Funds (ETFs) are simpler options. Fund managers handle the research and selection while you get exposure to global markets with smaller amounts. These funds invest in foreign markets directly or through feeder fund structures.

Feeder Funds These are Indian mutual fund schemes that invest in overseas funds. They’re regulated by SEBI and follow Indian mutual fund regulations, making them familiar territory for Indian investors.

Fund of Funds These invest in multiple international funds, giving you exposure to various markets and strategies through a single investment. Think of it as buying a thali instead of ordering individual dishes.

3. Key Markets and Opportunities

United States : The US market offers the deepest liquidity and hosts many global giants. From technology leaders like Google and Amazon to healthcare innovators and financial services companies, the US market provides access to companies that serve global customers.

Europe : European markets offer exposure to luxury goods companies, pharmaceutical giants, and industrial leaders. Companies like ASML from Netherlands or SAP from Germany dominate their respective global industries.

Emerging Markets : Beyond India, other emerging markets like Brazil, South Africa, or Southeast Asian countries offer growth opportunities. These markets often move differently from developed markets, providing additional diversification benefits.

China : Despite recent volatility, China remains the world’s second-largest economy. Chinese companies in technology, consumer goods, and manufacturing offer unique growth prospects, though they come with regulatory risks.

4. Regulatory Framework and Limits

Under the Reserve Bank of India’s Liberalized Remittance Scheme (LRS), resident Indians can invest up to 250,000 Cr per financial year in foreign assets. This includes direct equity investments, mutual funds, and other financial instruments.

Tax implications are straightforward but different from domestic investments. Foreign equity investments held for more than 24 months qualify as long-term capital gains, taxed at 20% with indexation benefits. Short-term gains are taxed as per your income tax slab.

You must file foreign asset disclosures in your income tax returns if your foreign investments exceed specified limits. Maintaining proper documentation becomes essential for tax compliance.

5. Risks and Challenges

Currency fluctuations work both ways. While a weakening rupee benefits your foreign investments, a strengthening rupee can erode returns. This currency risk is inherent in global investing and cannot be eliminated completely.

Political and regulatory risks vary across countries. Changes in foreign investment policies, trade wars, or geopolitical tensions can impact your investments. Recent examples include Brexit’s impact on UK markets or trade tensions between the US and China.

Different accounting standards and corporate governance practices across countries can make evaluation challenging. What’s considered acceptable practice in one country might be questionable in another.

6. Building Your Global Portfolio

Start small and gradually increase your international exposure. A good rule of thumb is to allocate 10-20% of your equity portfolio to international investments initially. As you gain experience and comfort, you can increase this allocation.

Choose your markets based on your risk appetite and investment goals. Developed markets like the US or Europe offer stability but slower growth. Emerging markets provide higher growth potential but with increased volatility.

Consider using systematic investment plans (SIPs) for international mutual funds. This approach helps average out currency fluctuations and market volatility over time, similar to how SIPs work for domestic funds.

7. Practical Implementation Strategy

Begin with international mutual funds or ETFs rather than direct stock picking. These provide instant diversification and professional management while you learn about global markets. Once comfortable, you can explore direct investments.

Monitor global economic trends and major market events. Understanding how factors like US Federal Reserve policy changes or European Union regulations might affect your investments helps in making informed decisions.

To sum up:
Global investing opens doors to opportunities beyond Indian borders while providing valuable diversification benefits. Start with small allocations through mutual funds, learn about different markets, and gradually build your international exposure. Remember to consider tax implications and maintain proper documentation for compliance. Your portfolio will thank you for this geographical spread when domestic markets face challenges.