Gen-Z and millennials in India have been prioritising their health and financial security this year, per a survey conducted by the credit payment start-up, Slice. Young Indians are focusing on efficient finance management with ‘Investment’ having emerged as an important resolution for the year.
According to the survey report, 57% of the respondents had said they would like to invest better while 21% of participants had said that they would like to save more. Among the 2,000 youngsters between the ages of 18 and 30 that were surveyed, ‘Mutual funds’ was the most popular investment option while gold was the least preferred.
While the report emphasized on the various aspects of diversification in India, including asset classes, securities, and investment period, there was one aspect that was missed, especially when it comes to Indian investors – ‘Geographical Diversification’. Most Indian investors seem to be unaware of the possibility of investing outside India.
India’s GDP and market capitalization is less than 8% and 2.6% of the world’s, respectively. Therefore, if your entire portfolio is concentrated in India, you may be overexposed to India as a proportion of your total portfolio. Being geographically diversified will provide stability to your returns (reduce volatility) as it reduces the probability of your entire portfolio being affected, all at once.
Over the last few decades, the NIFTY has returned more than 15% annually, which is impressive as compared to the other instruments like bonds, FDs etc. That said, one must keep in mind that this return is in INR – a currency that has depreciated more than 50% over the period. Simply put, this means that the gains of the Sensex has remained at around 6%, where as, the S&P500 has posted gains of around 10%, over the same period. For an Indian investor in S&P500, the INR depreciation actually boosts the returns!
Foreign currency expenses:
The modern millennials’ lifestyle includes multiple expenses that are indexed in USD, directly or indirectly. For instance, buying iPhone apps, retailing through international e-commerce sites like Alibaba, travel, education in a foreign university and many more.
Investment in global securities:
Indians’ inclination towards investing in global equities has increased exponentially in the past two years, as per social media mentions and trends that are publicly available. Over the past decade, the US S&P500 has delivered 10% more returns than the BSE/NSE key indices, while individual high value US stocks have at times yielded returns of over 1000%+. However, global investment is plagued by complicated paperwork, high minimum investment requirements, and a lack of guidance & customization.
Looking to invest globally?
If you are one among those looking to make global investments, here are a few options you may explore based on your experience and the corpus you want to invest.
Indian Mutual Funds that invest in foreign securities:
One of the safest and easiest method of investing abroad for an Indian. Buying these funds follows the same method as buying any Indian mutual fund. However, there may be some disadvantages:
- High cost — Mutual funds comprising foreign stocks are usually structured as funds of funds layering up the fees one has to pay – as high as 3% annually! That’s 60 times the 0.05% that S&P500 ETF $SPY charges.
- Limited choices — The number of options is relatively small. For example, there are no mutual fund policies that allow you to invest in Europe.
- Taxation — These funds are taxed like debt funds, so you have to hold them for a relatively long time before you get the benefit of long-term capital gains.
Investment through banks:
Many banks in India have tied up with global institutions to offer investment options abroad – ICICI Bank with SaxoBank and HDFC Bank with Stockal for example. One may feel safer investing this way mainly due to the bank’s local presence. One main demerit however, is that the actual brokerage account is held overseas and there is little your local relationship manager can do to help you, in case of any discrepancies.
Investment through Appreciate:
Appreciate is a startup focused on helping Indians invest in the US markets. Aiming to make the US equities available to invest at your fingertips, Appreciate is set to launch its AI-enabled, seamless, and hassle-free application – a comprehensive one-stop destination to meet your international portfolio goals. The company’s goal is to help one invest in the US equities and access better returns, thereby lowering risks through global diversification.
Benefits of investing through Appreciate include fractional share investing, helpful when one wants to buy shares of companies like Amazon where a single share costs more than INR 1.5 Lakh. In addition, low costs, and no-minimum-balance requirement make Appreciate an attractive investment platform for newbies and veteran investors alike. Furthermore, the provision of a summary with respect to transactions, dividends, and capital gains for each Indian financial year facilitates easy taxation in India.