India is one of the fastest-growing economies in the world. India’s GDP represents only 3% of the World GDP and roughly the same percentage of global stock market capitalization.
There is a lot of innovation taking place around the world. Innovation disrupts traditional industries. This creates investment opportunities in different countries, including India. Investors can’t just take investments that are available in India, they need to explore other areas too.
Reasons For Investing Internationally
Winners Keep Changing
Every country is different. They all have their strengths and weaknesses. This means that they react differently to the same news.
Correlation tells you how strong the relationship between two variables is. For example, it can tell you how good the stock market is doing in one country compared to another.
There have been times when India’s equity markets went up, but America’s went down. That is not always true. The correlation between the Indian and American equity markets is only around 0.29 in the last 10 years.
Hedge Against INR Depreciation
There is exposure to different currencies when you have investments outside of India. When the currency in India goes down, the global portfolio could earn higher money. This is because the US S&P 500 index chart below shows that when there is any depreciation in INR, there will be higher INR returns.
Ability To Participate In Global Themes
In India, the technology companies that are most important are not on the stocks list. This means that India is behind other countries in innovation because these companies have international businesses and they do not have a stock.
There are popular themes in the world. They are robotics, artificial intelligence, electric vehicles, industrial automation, e-commerce and cloud computing. These themes will shape our future so it is a good idea for people to invest in them.
Investing internationally can help to decrease the risk of just one country. It also provides benefits like having more money if you want to buy something that is not in your home country and it helps you have more options for what to do with your money.
Modes Of International Investing
You can invest internationally by investing in domestic mutual funds, which follow the investments of an index that is made up of global stocks.
You can also use what is called an “actively managed fund” where you invest in companies from other countries. Finally, you can also invest directly in foreign currency through a program called the Liberalised Remittance Scheme (LRS).
Investing in foreign stocks is not good for people in India. The money will be taxed as fixed income mutual funds, which are taxed differently depending on how long you have had them for.
Benefits Of Index Funds in International Investing
If you want to invest in international markets, the best thing to do is not to buy stocks. Instead, you should buy passive funds or index funds. This way, you will not have a lot of work and it will be cheaper.
Index funds are a type of fund that tries to copy the returns of an index. The idea is that they are easy to use and will give you similar returns as other people who invest in them.
Index funds are popular because they usually have low fees which means you can get more money for your investment. There are many types of index funds, but one type is called “equity index funds.” These try to match the performance of indexes like the S&P 500, Nasdaq 100, or MSCI World Investable Market Index.
Active funds have expenses. Global index funds are more economical because they do not. They also give people access to many different places in the world, not just one country. Plus you can get access to new things that are coming up, like big trends or themes.
Amongst The Opportunities Available For Domestic Investors
The Motilal Oswal S&P 500 Index Fund includes the top 500 companies in the United States and covers all 11 GICS sectors. It is a diversified index, including 100 of the biggest non-financial companies and those that makeup 10 of its top holdings.
This means that if people want to invest in the non-financial companies of the world, they can invest in index funds. This will track the MSCI World Index which has many developed countries and covers 85% of float-adjusted market capitalization.
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