Are we eligible and allowed to invest in these companies as per Govt rules?
Yes!, Indians are allowed to invest abroad for a maximum of USD2,50,000 per financial year, that’s a lot of money. This applies to Nonresident Indians(NRI) too!
This limit applies only if you are investing directly into these companies, not applicable for international mutual funds which provide us the flexibility to invest in INR.
Why to invest in International markets?
- Invest in high-quality companies, Global Leaders whose products or services available across the globe. if you think of products like iPhone, Gmail, Facebook, Amazon, Microsoft etc.
- These are companies which have a very competitive advantage, think of Microsoft, every computer being sold in this world needs to pay some cost towards their software products, it’s almost like a tax we do not have a substitute. the same is the case with other great companies in their respective domains.
- If you want to own such competitive companies, you need to invest abroad, we do not have such global companies here., it gives superior diversification to your portfolio.
India’s share of world GDP is around 7.5%, that means 92.5% of world GDP is not touched by investors who are not investing in international companies.
- Indian Equity markets are seeing high volumes of funds flowing in every passing month and scams like in PNB loan, IL&FS crisis etc. are hitting Indian markets recently. In view of this, it is better to look for diversification across economies instead of only Indian Economy.
- One more major advantage is that rupee will keep depreciating over a period of time, if you invest 100rs today and take it back after 5 years, it will anyway be growing at least 3 to 4%, given Rupee depreciation over the time due to interest rates difference in different economies.
Suppose you purchased a share of any US company for which is worth 2USD, you require 140rs today considering 70Rs/1USD, if, over a period of time, rupee depreciates to say 100rs/1USD, then same 2 USD will fetch you 200rs, for an investment of 140rs.
- And this interest rate difference is likely to continue over time in a growing economy like us, as inflation remain high, higher the interest rates to compensate for inflation-adjusted Fixed income returns.
You may read How to earn high from your Bank Balance
How to invest in them.? There are 2 ways of investing in them?
- Invest directly in these companies shares
- Many Indian brokerages firms like ICICI direct, HDFC etc. offers international trading facility. You can simply signup with required forms and start.
- Since you are transferring funds to the international market, you need to sign declaration form with FEMA
- Transferring funds to an international trading account may take 2 -3days, and returning back from international trading account your Indian account may take 3-4 days.
- Make sure you are well aware of these companies’ financials before investing and try to diversify
- Do not invest in companies which you do not know, as you carry high risk.
- The second option is through International Mutual funds
- As mentioned above, there is no limit on the amount to invest through mutual funds.
- These funds are available in the Indian currency. as the payment is made in INR, no foreign exchange rules will apply like FEMA etc, necessary approvals must have been taken care by fund companies.
Best international Equity Mutual funds to invest in 2019
These funds invest wealth in companies listed outside India.
- These are selected based on their performance in the last 3Y, 5Y and 10Y period.
- These funds have relatively less expense ratio, means you are able to hire a fund manager who invests outside India with lesser cost.
- Investors can easily diversify their portfolio and take advantage of international companies through these international mutual funds.
- Initially can allocate 5 to 10% of your monthly investable income towards these and gradually increase based on your risk and comfort levels.
While there are almost 40 international mutual funds to choose from, as we can see Exchange traded fund has done extremely well, among others and it comes with less expense ratio costs too.
Motilal Oswal NASDAQ 100 Exchange Traded Fund
the Scheme follows an investment return that corresponds to the performance of NASDAQ 100 Index.
While there are various other options, I would rather go with this index fund as it gives complete allocation as per NASDAQ 100 index, and of course it has given good returns over the long term.
Below is the list of few other international mutual funds you may choose if you wish to diversify.
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