If you are well experienced in domestic investments, international trading and investments can be your next leap forward.
The golden rule in investing is to diversify your investment portfolio. There are various investment options to choose from – shares, mutual funds, precious metals, government bonds, deposits, insurance, saving schemes etc.
Depending on the risk appetite of an investor, their choice of investment could vary widely. For instance, a conservative investor would prefer to invest in risk-free instruments like government schemes and deposits. A speculative individual would rather go for derivatives and shares with the aim of faster profit.
One would be tempted to believe that Indian women investors might prefer to invest in gold, given their affinity towards the yellow metal. However, concentrating too much investment in the same category is not a good idea. Diversifying your investment across different asset classes helps you to neutralise the effects of market volatility, and gives you a chance to benefit from the growth of different assets. This enables you to plan for the long term and accumulate more through compounding of interest.
However, diversification need not necessarily be across asset classes only. Geographical diversification can help you to spread your investment further across different countries.
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What are the benefits of investing internationally?
- More investment options: International diversification opens up the opportunity to invest in some of the best investment options in the world. Indian women can choose a mutual fund that invests internationally, or invest in stocks. Many mutual funds invest in companies listed in international indexes like NYSE and NASDAQ. Some mutual funds also invest units of foreign-based mutual funds. Besides, investments are also made in equity-related securities, ADRs, GDRs etc. By investing internationally, you can tap the growth of global giants like Apple, Alphabet, and Microsoft, which are not listed in India.
- Window to developed economies: India’s GDP is around 3% of the global GDP. The GDP of the US, on the other hand, accounts for nearly 24% of the world’s GDP. By investing internationally, you get the choice of investing in developed economies. The stocks originating in such countries are well-settled in the market and less susceptible to regional volatility, due to their global operations. As an investor, you should look for economies that are on a high growth path or are more consistent in their gradual growth.
- Lower risk: A woman investor from India would naturally want her investments to be safe from market volatility. International investments give her the option of choosing to invest in less volatile markets, which are less risky. The US market, for instance, has a very low correlation to the Indian market. This offers an alternative that doesn’t swing in line with one’s domestic investments. Reliable international investments can balance out any erosion that one may suffer in the domestic market.
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What are the risks involved?
International investments are not without their fair share of risks. You are venturing into relatively unknown territory, and there may be risks beyond your control and mitigation.
- Transactions cost: There may be high brokerage and ancillary charges involved in international trading and investment. If you are investing in a country with a stronger currency, your overseas brokerage charges will accordingly escalate. International transactions are also subject to local and overseas taxes. There’s also the risk that you may end up sacrificing much of your profits, which will go towards meeting expenses.
- Currency fluctuations: When you are investing overseas, a different currency is involved. If your domestic currency gains against that overseas currency, your investment value will stand devalued due to the exchange rate fluctuation. To hedge against this risk, investors use currency futures, forwards, and options contracts.
- Liquidity risks: It’s difficult enough to predict uncertainties in the domestic market. Foreign economies can react much more sharply when you least expect it. In times of political instability or a natural calamity, it may be difficult for you to dispose of your foreign assets without incurring significant losses.
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The Reserve Bank of India (RBI) has set a cap of $250,000 under the Liberalised Remittance Scheme (LRS) for individuals investing in foreign assets annually. Under this scheme, you can trade through an overseas account with an Indian broker, or opt for an international broker. If you are interested in mutual funds, you can go for an Indian mutual fund or exchange-traded funds with global equities. With either option, you get opportunities to invest in world-class assets.
A woman who is experienced in domestic investments and trading can venture to explore overseas companies that are performing well. International investments even out the home country risk by diversifying one’s portfolio across geographies and asset classes. Therefore, Indian woman investors should see international investment as a natural progression in their investment life cycle. What investment options can create a regular income for women?