You socialize on Facebook, shop on Amazon, watch movies on Netflix and ‘Google’ for all sorts of information. As a consumer, we trust various brands and as a logical extension, sometimes even want to own its shares. At least the Peter Lynch fans.
However, many such global leaders are not listed in India. Byin overseas equity, you get an opportunity to make it part of your .
An Internationalis one such way to capitalize on prospects of global leaders. Should you own them?
What are international funds?
Internationalare that in stocks of companies listed outside of India. For instance, an US large cap in large cap companies like Apple, Microsoft, Procter & Gamble and Amazon.
can be broadly classified as thematic, region-specific, country-specific and global. Thematic have a specific focus like commodities, real estate or energy. Region-specific , in turn, have regional focus (say Asia-pacific or Europe). Similarly, there could be a country focus like that of the US, China or Japan while global without any geographical barriers.
Many of theseoperate as a feeder whereby they in a globally managed international . While most are actively managed , some also mimic global indices.
Why do people invest in these funds?
There are broadly three reasons:
1. Benefit by investing in the growth of renowned multinationals which are not listed in India.
Some technology-based sectors such as search engines, payment infrastructure, cloud computing, and digital OTT platforms have clocked good growth globally and are uniquely positioned to capitalize on disruptions caused by the pandemic. Since companies in these sectors are not adequately listed in India, investors can benefit byin .
2. Take advantage of the difference in currencies which can be a source of gains on its own or de-risking strategy.
Aided by rupee depreciation against the dollar, some UShave posted robust returns. benefit whenever rupee depreciates against a currency since your returns (earned say in dollars) is enhanced in rupee terms.
3. Diversify your equity portfolio beyond the Indian stock market.
Every economy goes through its periods of ups and downs which in turn impact its companies and its stock prices. Byin companies of different economies, you are definitely managing your risk – since all economies (and therefore their stock market) don’t necessarily move in tandem.
While all seem a good trigger to buy, there are a couple of caveats:
1. Don’t chase high returns
Investors should not get swayed by high returns of internationalof the past as it is likely to ‘normalize’ over the long-run. So, focus more on and the need for .
2. Tax googly
Theseare given the same tax treatment as that of a debt fund. So, if you hold on to these for a period of three years, you get benefits while the net are taxed at 20 per cent. It makes these a costlier proposition as against regular that are taxed at 10 % only if are more than Rs 1 lakh in a financial year.
3. Don’t bet on currency
A lot also depends on the region or country chosen for currency gains. While the rupee has depreciated against the dollar benefitting the US, it might not be the case for a global that in multiple currencies. Moreover, currency movements are volatile and rupee value fluctuates based on global inflows. So, currency appreciation cannot be an trigger.
4. Economic and political risks
Every economy is exposed to demand and political risks. These risks are higher for smaller economies and those having a higher share of its GDP in the form of exports. Any global fall in demand can impact its economic growth and local stock prices grievously.
A possible Investment approach
1. Stick to large economies
The US economy is large and developed with many of its companies listed on its exchanges and well-regulated. It is safer toin such large economies. Regional and global can also be chosen as long as they don’t take riskier bets.
2. Currency-denominated hedge
in international equity is a good way to meet your foreign currency-denominated goals such as children’s higher education in the US. It will provide a natural hedge to the risks in currency fluctuation.
3. Limit exposure
Interestingly, some regularalso capitalize on international stocks by in them. If you seek full-fledged exposure, you can go for . However, restrict exposure based on your needs and goals.
Internationaloffer but come with an element of risk. only after understanding their full workings.