With better returns overseas, investors move to international equity markets.
Investors who rue the lack of investment opportunities in the Indian financial sector are now looking for better returns in the overseas markets. While one could invest in the international markets directly, brokerage houses too are cashing on this trend.
Both international equity markets as well as funds have done better than their Indian counterparts. While the BSE Sensex gave returns of 17.4 per cent in 2010, the Indonesia, Philippines and Thail markets gave returns in the range of 30-40 per cent. Even among the top 15 mutual funds in the last 12 months, nine happen to be global funds that notched up 19-24 per cent returns. The last quarter has seen the BSE index give negative returns of around five per cent. But equities are not the only option that one can invest in.
DIRECT INVESTMENTS
Investors can look at real estate, commodities and even structured products, especially the kinds you do not get in India. Also, say you want to take a position on a particular currency, or on the price of orange juice or cocoa (which you can’t do in India), or even for simpler equity or mutual fund investments overseas, the direct investment route is a viable option. However, there is a limit of $200,000 that can be invested per person in the Reserve Bank of India (RBI) regulations. So, the direct route often becomes harder to manage and less cost-effective, unless done in larger amounts. So a family of four could invest up to $800,000, making it possible to make real estate investments as well.
BROKERAGE FIRMS
Most big brokerage houses provide investors with linkages to other international brokers. To start accessing the international markets, one will need to set up an account with the international broker through the Indian broker and maintain the required funds. However, one does need to consider the cost of around two to five per cent. This is considerably higher than what the broker would charge for trading in the domestic markets, which is around 0.25-1 per cent of the traded value.
INTERNATIONAL MUTUAL FUNDS
One could gain international exposure for their portfolio through mutual funds. Most international mutual funds in India are invested in not only an entire gambit of sectors (equity, real estate, commodities, commodity companies), but also allow you to invest in a particular region or country if you wish to. This is the easiest way to invest internationally as you invest in these funds the same way you would invest in any Indian mutual fund, paying in rupees and choosing the amount of exposure you want. Fund management charges for these are 2.25 per cent.
This is the best first step since it allows you get comfortable with the international exposure to your portfolio and gradually increase investment levels at your convenience, say wealth managers.
However, taxation is the major drawback in international investing. Investments made abroad attract the normal capital gains tax, which will, however, depend on the final investment or where the money is invested. The mutual fund investing route has the normal tax laws applicable. “If you use the direct route or broker route to invest in shares, the investor does not get the exemption on long-term capital gains. He will have to pay a 20 per cent tax,” says certified financial planner, Sandeep Shanbag. The same holds true for investments in commodities, debts, bonds and real estate.
