Thinking of Investing in International Markets? Here’s What You Need to Know First

In recent years, Indian investors have increasingly been diversifying their portfolios by exploring opportunities in international markets. As the Indian economy matures and global markets become more accessible, investors are seeking exposure to high-growth sectors and global giants that offer strong returns. With over ₹50,000 crore in assets under management (AUM) in international funds as of 2023, Indian retail investors are showing a growing appetite for global diversification. If you’re considering joining this trend, here’s a guide to help you start investing in international markets from India:

Why Indian Investors Are Turning to International Markets?

Indian retail investors are increasingly realizing the benefits of investing globally. One of the primary drivers is the impressive returns offered by international securities. For instance, US large-cap firms, exchange-traded funds (ETFs), and diversified Fund of Funds have delivered robust returns. Take NVIDIA, for example, which has seen returns as high as 3000% over the past five years. Such opportunities are hard to ignore, especially when Indian markets may not offer the same exposure to certain high-growth sectors like technology and pharmaceuticals.

The Growing Popularity of International ETFs and Mutual Funds

One of the simplest ways for Indian investors to access foreign markets is through international mutual funds and ETFs. As of mid-2023, there has been a 30% year-on-year increase in the number of Indian investors opting for international ETFs.

These funds provide easy access to global markets, allowing investors to benefit from the performance of international equities, especially in the US, which remains a top destination. Nearly 75% of international investments by Indian retail investors are funneled into US equities and ETFs. This surge reflects the allure of strong, consistent performers like Apple, Google, and Amazon.

How to Invest in International Markets from India?

Indian investors have multiple routes to enter international markets. Here are some of the popular options:

– Mutual Funds and ETFs: You can invest in international mutual funds that focus on global equities or specific regions. Many funds now offer exposure to high-growth sectors such as tech and pharma, both of which are preferred by Indian investors, comprising over 60% of total international equity investments.

– Direct Stock Investments: If you’re interested in directly purchasing shares of foreign companies, several platforms in India facilitate this. Companies like Google, Tesla, and NVIDIA can be accessed through these platforms, allowing you to diversify your portfolio.

– Fund of Funds: These are mutual funds that invest in other global funds, providing indirect exposure to a wide range of international securities.

What are the Challenges of Investing Internationally and How to Manage Them?

When investing in foreign markets, one factor you cannot ignore is currency risk. Since your investments are denominated in foreign currencies, fluctuations in the exchange rate can impact your returns. For instance, if the Indian rupee depreciates against the US dollar, your returns in rupee terms may increase, but the reverse could also hold true. To manage this risk, consider investing in funds that offer currency hedging options, or diversify across multiple currencies to spread your risk.

What are the Tax Implications on International Investments?

Indian investors must understand the tax implications of investing in foreign stocks. When you invest in US stocks, for example, dividends are taxed at a flat rate of 25%, which is deducted by the US government before you receive the dividend. Thanks to the US-India tax treaty, this rate is lower compared to other foreign investors.

Additionally, you can claim credit for this withheld tax in India under the Double Tax Avoidance Agreement (DTAA). Capital gains are also taxable—short-term gains (stocks held for less than 24 months) are taxed at your income tax slab rate, while long-term gains (stocks held for more than 24 months) are taxed at 20% with indexation benefits.

Important Things to Know Before You Start Investing Internationally:

– Increasing Remittances to Overseas Investments

The Reserve Bank of India (RBI) allows individuals to remit up to $250,000 per financial year under the Liberalized Remittance Scheme (LRS). This limit covers investments in foreign stocks, bonds, and even real estate. In 2023, Indian investors remitted nearly $2 billion for international investments, a sharp rise from $1.5 billion in 2022. This increase reflects the growing interest in global markets, particularly as more investors become aware of the diversification benefits of holding foreign assets.

– Stay Informed About Market Trends

Successful investing in international markets requires staying informed about global economic trends, geopolitical factors, and market performance. For instance, changes in interest rates, inflation, or trade policies in the US, Europe, or China can have a direct impact on the stock prices of companies based there. Indian investors should regularly monitor these factors and adjust their portfolios accordingly. Using tools like financial news, global research reports, and market analysis platforms can help make informed decisions.

– Consider Geopolitical and Sector-Specific Risks

When investing internationally, it’s important to diversify not only across geographies but also sectors. While the US markets are popular, it’s wise to spread your investments across different countries and industries to mitigate risks associated with specific regions or sectors. For example, global tech and pharmaceutical sectors are strong, but their cyclical nature means they can be volatile. By diversifying, you reduce the potential downside of market-specific disruptions.

– Evaluating Costs and Fees

Investing in international markets often comes with additional costs. These may include currency conversion fees, brokerage fees, and management fees for ETFs or mutual funds. It’s important to account for these costs when calculating potential returns, as they can affect your overall profits. Compare platforms and fund managers to find options with lower fees without compromising on quality.

– The Role of Financial Planners

Given the complexities of investing in international markets, consulting experts like HappyWise Financial Services can be helpful, especially if you’re new to global investing. Advisors can guide you on choosing the right markets, investment vehicles, and strategies tailored to your financial goals and risk tolerance.

Conclusion

International markets offer Indian investors the opportunity to diversify their portfolios and tap into sectors that may not be as accessible in India. With the rise of digital platforms, accessing foreign stocks and ETFs is easier than ever. Whether you’re seeking higher returns, exposure to global giants, or diversification, international markets present a compelling opportunity. Just remember to factor in currency risks, taxation, and costs while making your investment decisions.

By following these steps and staying informed, Indian investors can benefit from the growth potential of global markets, just as many already have in recent years.

These tips are brought to you by HappyWise Financial Services.

If you need any assistance with organizing your finances or want to discuss your investment options, feel free to connect through Email or Whatsapp.

Disclaimer: Some part/s may be generated/modified using GenerativeAI