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Working from home due to Covid-19 has made us dependent on technology to the hilt. You could be doing Zoom calls or Google Meets during office hours, binge-watching on Netflix, Amazon Prime Video, Hotstar over weekends, surfing YouTube videos, posting messages pictures or even sharing recipes on social media sites such as Facebook, Instagram, etc. or reading the news on Google news and other online news apps…the list is endless. These platforms have seen a steep rise in number of its subscribers. For instance, Indians form the highest user base of Facebook with 280 million users as on April 2020. Netflix saw its paid subscriber base reach an astounding 15.8 million in the first three months of 2020. Between February and April, the monthly percentage growth rate of daily active users on online streaming platforms Netflix and Amazon Prime video shot up by 122% and 72% respectively.
Now, here is a thought. Since these online platforms are raking in funds with a rising subscriber base, giving their investors a reason to cheer, it would make sense for you to invest in such platforms too. You would have marquee names such as Google, Amazon, Facebook, Netflix, etc. in your investment portfolio as well.
Yes, you can. There are broadly two ways; you could directly buy stocks listed on foreign stock exchanges or you could invest in mutual fund (MF) that invest in such stocks. Taking the MF route is easier as directly buying shares require you to open a bank account, demat account and brokerage account abroad, remit funds into your foreign account, study the markets and individual stocks, understand currency issues, keep track of political and other developments, and so on.
These are feeder funds (in simple words, fund of funds) offered to Indian mutual fund investors, which then invest your money in schemes abroad. The latter, then, invests in stocks of companies listed abroad such as Apple,Google, Microsoft, Facebook, Netflix, etc.
Some foreign funds invest directly in stocks abroad. Few others are passively-managed and they invest your entire corpus in companies- and in same proportion as they lie – in indices such as Nasdaq100, S&P 500, etc.
International funds can also be categorized in terms of the geographies/markets or sectors they invest in. While some funds invest in developed economies such as the US, Japan, etc., others invest in emerging markets; some funds invest acrossgeographies or markets. Most, though, prefer to invest in international equities and not in debt.
Firstly, you get diversification. Every economy has a different growth cycle; while some economies may be going through a downturn, others could be on an upswing. By investing across economies at different growth cycles, the growth cycle of one economy will help boost the quality of your portfolio and protect you from the downturn of another economy; it also helps you capitalize on opportunities in the growth economy. It also gives you a chance to invest in global companies that aren’t listed in Indian stock markets.
Secondly, it gives you the benefits of currency depreciation. If Rupee depreciates against the foreign currency, you get more bang for your buck. This helps in planning for your financial goals such as a foreign education for your children, or relocating abroad. Investing in such funds at an advanced stage helps protect your corpus against a possible Rupee depreciation. On the flipside, if the INR appreciates, investors will receive lesser if they redeem at this point.
It’s advisable to invest in developed countries that are performing well and have a lower correlation to emerging markets like India. Since India is an emerging market, it does not make sense to invest in another emerging market. The US is currently on a growth cycle and the country’s markets have listed the best performing global companies such as Amazon, Facebook, Netflix, etc. making it one of the best markets to invest in. This is evident from the rise in the Nasdaq100 index which is composed of prominent global companies such as Facebook, Microsoft, Amazon, Alphabet, etc. The Nasdaq100 has delivered attractive 10-year CAGR returns of about 18%. As against this, the BSE Dollex 30 has delivered CAGR returns of a mere 0.03% over the same period. The BSE Dollex 30 index is a like-to-like comparison with the NASDAQ since its constituents are the same 30 companies that form the BSE Sensex, but their prices are in USD terms. With the USD strengthening against the INR, even while the companies have performed well, the strengthening dollar (and lower INR value) has resulted in returns falling to nearly zero over the 10-year period.
It’s advisable to invest in foreign markets whose currency is appreciating against the Indian rupee. For instance, the Indian Rupee (INR) depreciated against the US dollar significantly. From around Rs 46 in mid-2010, it has depreciated to Rs 75.95 as on 18 May 2020. the US markets that are represented by the US dollar are attractive since the INR has been depreciating against the USD, which results in a rise in the NAV of international funds investing in the US markets.
Invest at least 10-15% of your portfolio in international funds.
It’s preferable to invest in international funds that, in turn, invest in a foreign stock market index such as the Nasdaq100, S&P 500, etc. than investing in actively managed international funds. Investing in the index not only brings top performing companies into your investment portfolio (since such companies usually form part of such foreign indices), it also reduces the risk of possible investing errors that could result from active fund management.
International funds are taxed as debt funds. If you stay invested for less than 3 years, the capital gains are taxed at the tax slab applicable to your total income. If you stay invested for more than 3 years, capital gains are taxed at 20% with indexation.
