Global Investing

Childrens foreign education : Many parents aspire to send their children to foreign universities. From a financial planning standpoint, one of the main challenges for parents is currency depreciation. For example, let us assume annual cost of an undergraduate program (bachelors degree) in engineering in one of top universities of the United States is $50,000. In addition, living expenses may cost you another $12,000 - 15,000 per year. 10 years the USD / INR exchange rate was 54.3. So 10 years back, the cost of your childrens education in the US would have been around Rs 35 lakh per year. At todays exchange rate (USD/ INR @ 82.85), your cost would be Rs 53 lakh per year. The length of an undergraduate program in engineering is 4 years. If the dollar continues to appreciate at the same rate against the rupee, your cost in the childs graduation year will be around Rs 64 lakh. If you are saving for your childs foreign education, you can hedge your currency risk by investing in foreign currency denominated investments, e.g. US stocks, US ETFs etc.

Portfolio diversification : There is low correlation of returns of different markets. Investing in global equities can diversify risk considerably and bring stability to your portfolio. The chart below shows the returns of MSCI India Index and MSCI World Index in constant currency terms (US Dollars) over the last 10 years (up to 30th November 2022). You can see that, India outperformed MSCI World Index in 5 out of the last 12 years, while MSCI World Index outperformed India in 5 years. A portfolio comprising of both domestic and international equities can bring stability to returns.

Exposure to global mega-trends : The Indian stock market is dominated largely by traditional industry sectors like Banking and Finance, Oil and Gas, Automobiles and Auto Ancillaries, IT Servicing, Metals, Pharmaceuticals, Cement and Construction, Power, FMCG etc. Through global products, you can get exposure to investment themes, especially in the technology space, that are currently not available or not yet fully developed in the Indian stock market e.g. E-commerce, Social Media, Online Streaming, Gaming, Artificial Intelligence, Cyber Security, Robotics, Electric Vehicles etc. Many of these themes have huge global markets and high growth potential.

How to invest in foreign stocks directly?

Under RBI's liberalized remittance scheme (LRS) resident individuals are allowed to remit up to $250,000 per year for investment or expenditure. If you have a family of four, you can make up to $1 million of investments every year. Under LRS, you can open a trading account directly with an international stockbroker. You do not need to have a US address or US ID (Social Security Number), to invest in the US. However, rules may differ from country to country. An easier option is opening with a domestic stockbroker, who has a tie-up with a broker in the market where you want to invest. You do not need to open a bank account in the foreign country to invest in the foreign stocks. Payments can be made from your bank account subject to the LRS cap allowed by RBI.

How to invest in foreign stocks indirectly?

You can indirectly get exposure to foreign stocks by investing in international ETFs or international fund of funds. These are offered by the domestic asset management companies. The process for investing in international ETFs offered by domestic AMCs is the same domestic ETFs. Similarly the process for investing in international fund of funds is like any mutual fund scheme.