Benefits of Investing in Global Products

Benefits of Investing in Global Products Domestic shares are preferred by most investors around the world, although investors in developed economies also dedicate a portion of their portfolio to international equities. In recent years, we've seen a rise in interest in foreign products among Indian retail investors. In the previous two years, several global items have been introduced. Though being a small portion of the overall mutual fund sector AUM, assets under management (AUM) in the fund of funds (FOF) investing overseas increased thrice in the year ended November 30, 2021.

Why you should invest in global products?

Diversify single country risk

You are exposed to country risk if you invest in a single country's equities or debt products. Because India is our home nation, many people may not consider their investment portfolio, which consists solely of local stock or debt, to be subject to single country risk. However, you are exposed to single-country risk from an investment standpoint. If the market in your home nation underperforms, your portfolio will underperform as well. Natural disasters, pandemics, and geopolitical crises are all examples of country risk (e.g. war, trade sanctions). Investing in global products can help to diversify single-country risks.

Provide stability to your portfolio

The returns of different markets have a low correlation. Investing in foreign equities can help you spread your risk and keep your portfolio stable. Returns can be more stable in a portfolio that includes both domestic and international shares.

Exposure to global mega-trends

Traditional industry areas such as Banking and Finance, Oil and Gas, Automobiles and Auto Ancillaries, IT Servicing, Metals, Pharmaceuticals, Cement and Construction, Power, FMCG, and others dominate the Indian stock market. You can have exposure to investing themes that are currently unavailable in the Indian stock market, such as E-commerce, Social Media, Online Streaming, Gaming, Artificial Intelligence, Cyber Security, Robotics, and Electric Vehicles, through worldwide goods. Many of these topics have large worldwide markets and considerable growth potential.

Diversify currency risk

Currency risk is important for investors who expect to spend money in a foreign currency, such as for abroad education for their children or a foreign vacation. If your savings or investments are in domestic (INR) assets, and the foreign currency in which you must spend appreciates against the INR, your funds will be depleted faster. Global products' underlying securities are denominated in foreign currency (e.g., the US Dollar); as the US Dollar appreciates against the INR, so will the Net Asset Values of global products. As a result, global goods can assist you in reducing currency risk.

Benefit from appreciation or depreciation of the currency

Over the last ten years or more, the INR has been steadily declining. For the reasons stated above, INR devaluation increases the returns from worldwide products. However, investing in global or international equity solely to profit from currency fluctuations is not a good idea. Currency risk is a minor consideration compared to equity risk.

How to invest in global products?

• You can invest in a fund of funds (FOFs) schemes of mutual funds that invest in international equities to gain exposure to global stocks. These mutual funds or exchange-traded funds invest in international mutual funds or exchange-traded funds (ETFs). You can invest in these funds in the same way that you would in any other mutual fund scheme.
• To make educated investment selections, investors should know which market or markets the FOF is investing in.
• Before investing, investors should grasp the FOFs' investing objectives, such as topic, possible opportunity, fund strategy, and so on.
• Before investing, investors should look at the track record of the FOFs' underlying funds.
• Investors should be aware that global products are taxed as debt and should plan their tax strategies accordingly.

Final Thoughts

Investors should first be aware of their risk profile and investing purpose before looking into international markets. Choose a fund that fits your profile and goals, and don't forget to include it in the cost. Ideally, investors should begin with a lesser allocation (for example, 5%), and then gradually increase their allocation over time if it is appropriate. Taking such exposure has never been easier, with so many possibilities in active mutual funds and now also in low-cost passive products like ETFs. Investors should talk to their financial advisors about whether global products are right for them and how much of their asset allocation they should put into them based on their risk tolerance.