Five reasons to invest in International Equities

Friday, September 7th, 2018

Why invest in international equities? We would say, why would you not? Here are just a few reasons why it is prudent, for an investor with a longer time horizon and and more aggressive risk profile, to have an allocation to international funds:

  1. Globalisation: Since 1991 India has slowly but steadily opened up to foreign investment. Today the Indian consumer is a global consumer. Brands such as Amazon, Google, Samsung, Toyota, Zara, Cadbury’s etc have been used by many Indians and none of these companies are listed in India. And the same is true for B2B companies. Moreover, a number of the new Indian companies are getting listed abroad or have majority foreign ownership. Take the examples of Flipkart, PayTM and Ola which are all foreign owned. If the companies we do business with are global, why should our investments be restricted to local?
  2. Good Performance: The returns of international equities have been good over a longer time frame. In fact, mutual funds investing in US equities have been the amongst best performing portfolios because not only did US markets do well in local currency terms, but the rupee depreciation also added alpha in the last year. Similarly, broader emerging markets have given returns in line with Indian equities over much longer time frames.
  3. Little difference in taxation: Earlier it used to be the case that funds that invested in foreign equities were taxed as debt whilst domestic equity funds were tax free after a year. But since 2016, domestic equity funds are taxed on long term capital gains at 10 per cent as well. The difference in taxation is now relatively smaller
  4. Currency hedge: Gold is thought of as a good way to hedge against Rupee depreciation. However returns have been flat over the last several years. Foreign funds invest with dollar as a base currency and therefore can act as a natural hedge for the portfolio
  5. Prudent Risk Management: While India is structurally one of the best long term stories for equities globally, it is essential not to have all eggs in one basket. If things suddenly go bad in one market, you have the global diversification to keep your portfolio in check

About the author

Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.

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