Last updated: 19 Aug, 2021 | 12:14 pm
With the advent of digital economies and the world becoming a global village, investing should not be narrowed down to a single country. And fortunately, investing is globalized now. Sitting in India and investing in the global economies is not a big deal nowadays.
Global investment or international investment is a way through which an investor may acquire financial assets and securities in different countries of the world. It may serve different purposes like diversification of portfolio, larger returns, more stability, etc. Investing in global assets may include investing in real estate, foreign securities, etc., abroad. Here, we will discuss investment in foreign securities as a part of global investment strategy.
The global market includes the stock market of every country other than India. But if we go for selecting the best, then none can beat the US stock market. One simple reason, most of the tech giants and some of the most dynamic companies predominantly exist in the US. If you are an admirer of the US stock market, then FAANG may not be new to you. And these companies operate at a global level, meaning that investing in these companies means investing in the global economy.
Before discussing the procedural requirements, it is pertinent to note that the investments in the American Stock Market can be made in either of the following ways:
Various funds pool money from the investors and invest them in the US stock market, whether in the US mutual funds or the US stocks or debt securities directly. Whatever the case may be, it is the indirect means of investment in the US stock market which may add to the costs of the investors. This is because the Indian stock broker will charge its fees, then transactional costs, then the foreign counterpart will also charge its costs, etc.
If you possess knowledge about the stock market, you may consider investing directly in US stocks instead of going through the mutual fund route. Some of the best and world-class companies operating in the US have provided outstanding historical returns.
The basic procedure for investing in the global market is the same as the domestic market, which involves opening a demat account. However, the choice of your stockbroker may change depending on the route you select to invest in the US stock market. Below mentioned are the two options:
If you are planning to invest through an Indian mutual fund that invests in US equities, you will have to open a demat account with an Indian stockbroker who provides access to such funds. It will involve regular KYC and other basic procedures, and you can start investing. However, you should go through the charges of the stockbroker and expense ratio of such a mutual fund as it will ultimately lower the returns of the investor.
Again, the KYC and other basic procedural requirements will be the same as above. However, it should be noted that only a handful of brokerage firms provide an option to invest in the US stock market directly.
Global investment certainly comes with a lot of benefits, as discussed hereunder:
This is one of the primary reasons that investors are shifting their focus from domestic markets to global markets. Diversification through investing in different countries and geographies reduces the risk to a great extent. Even if the economy of one country takes a dip, the value of your portfolio will be affected only to a limited extent. Your holdings in foreign securities may not be affected much because the entire geography changes here, and usually, the correlation between different geographies is on the lower side.
Options available to you for investing are now not limited only to your country. You can enjoy the returns of a variety of instruments that may not be available in India. The US is the home to most tech giants, and all the FAANG stocks are American. Also, it should be noted that all the companies with more than trillion-dollar valuations, barring Saudi Aramco, are US companies.
The benefit of currency fluctuations
Apart from the growth in stocks, an investor also benefits from the fluctuation of the currency. To make the picture a little clearer, suppose, when an investor purchased a US stock, the rupee was trading against dollars at Rs.70/$. And when this investor sells his holdings, the rupee is trading against dollars at Rs.75/$. Therefore, here the investor benefitted not only from the gains of investment but also from the gains of currency fluctuation as he paid Rs. 70 when he purchased the stock and got Rs. 75 when he sold the stock.
Developed economies like the US have more stringent investor protection laws to protect the capital of their investors. Therefore, global investing again comes with the benefits of investing in such safe economies.
Global investments do come with certain limitations. Let’s take a look at them:
Before investing in any economy, the investor should consider the bilateral relations with that country. The reason being, if relations are not good, then any political decision may adversely affect the investment done in that particular country. It should be noted that relations of India have been good historically with the US, which is one of the most dominant economies.
If the example given above is reversed, then the returns of the investor may decrease because of the currency fluctuation. However, an investor may consider hedging as a tool to mitigate this risk.
Investors should definitely go through the charges of the stockbroker before opening a demat account, as foreign investments may involve more than regular charges.
Benefits that global investments provide certainly outweigh the limitations that it brings. Moreover, the US, being one of the most dominant countries and home to the largest tech giants with global operations, is one of the best markets to invest in, especially for Indians, considering the bilateral relations of India and the US. They both have always been allies to each other and share a great friendship.
Whether an investor opts to invest in the US market through mutual funds with foreign equity holdings or directly in the stocks, both these options are available on the INDmoney platform. INDmoney provides the perks of no-commission investing and free opening of the account, which is a relief to investors as transaction costs may run huge for international investments.