Give Global touch to your Investment Portfolio
Simply put, diversification is not putting all your eggs in one basket. Or not putting all your money into just one type of investment. All investments are subject to some level of risk. Some more than others. Different types of investments perform better under different market conditions. By investing in more than one type of investment you diversify, which can help reduce the risk for your overall investment portfolio. The more ways you diversify the more likely you are to reduce your risk.
Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. One way of diversifying of risk is to invest in global financial instruments. It is very difficult for the ordinary investors to get access to the financial products launched in other countries and its also a very tedious effort to identify good international investment schemes. So its recommend to invest in good international mutual fund schemes locally available. This will definitely give an international touch to your portfolio and to certain a extent help you to reduce the risk and enhance the returns.
The international fund category has been growing rapidly in recent years, with several new fund offerings that provide investors a wide variety of options to invest in them. There are several advantages of investing in these funds and given their track record and performance, there is a compelling reason to invest in them that goes beyond the traditional global diversification rule. Given the opportunity when investing in these funds, it is in your interest to understand the nitty gritty of investing in global funds to make the most of the available options.
The below table shows the performance of some of the Global Mutual Funds
| Fund Name | One year Returns as on 06-Feb-2014 |
| Motilal MOSt Shares NASDAQ 100 ETF | 48.3 |
| FT (I) FF US Opp. -Direct (G) | 47.7 |
| FT (I) Feeder-Franklin US Opp. | 46.1 |
| ICICI Pru US Bluechip - Direct | 38.5 |
| ICICI Pru US Bluechip Equity (G) | 37.4 |
| DSP BR US Flexible* Eqty-Direct (G) | 37.2 |
| DSP BR US Flexible* Equity Fund (G) | 36.4 |
| Birla SL Intl. Equity - A (G) | 25.3 |
| DWS Top Euroland Offshore -DP (G) | 25.2 |
| Birla SL Intl. Equity - A (G) | 24.6 |
| DWS Top Euroland Offshore Fund (G) | 24 |
| DSP-BR World Energy - Direct (G) | 20 |
| DSP-BR World Energy - RP (G) | 19.7 |
| JPMorgan Greater China Eqty-Direct | 17.6 |
| JPMorgan Greater China Eqty | 16.4 |
| L&T Global Real Assets -Direct (G) | 16 |
| Mirae China Advantage -Direct (G) | 15.7 |
Note: The returns shown in the table may not be accurate. This is only for information purposes
Please keep in mind that, the performance of all global funds are not upto the mark. Investors have to choose from the different types of funds. It has to be a diversified rather than a commodity or sector specific fund.
Currency Risk
Since global funds invest internally in other countries, the investment is mostly done in the currency of the country where the investment is made. You must under one thing that , there is an aspect of currency exposure that one take while investing abroad. The returns may be impacted depending on how the rupee behaves vis-a-vis that currency. The underlying assets in the portfolio is valued on each valuation day based on the forx rate of that day. The base currency of the scheme is in INR so they need to convert the foreign currency into INR(the net result is forex loss or gain that will impact the scheme NAV in addition to the price fluctuation in the underlying assets) . Suppose, if , the rupee has depreciated against the dollar or other related currency, you will earn more, and if the rupee has appreciated, your returns will be lower.
Tax Treatment
As per Income Tax Act 1961 and for taxation purpose, global funds are treated as debt funds. So,Short-term capital gains from debt funds are added to your income and taxed according to your tax slab. This means any capital gain from these funds will be taxed at 10 per cent without indexation and 20 per cent with indexation. Short-term capital gains from debt funds are added to your income and taxed as per your tax slab
Investors looking to diversify within equity for a medium to long period and ready to take some risk can invest in international funds These funds may not suit a person who has a conservative approach to investment and is averse to investing in equity.
Conclusion
Diversification can help an investor manage risk and reduce the volatility of an asset's price movements. Remember though, that no matter how diversified your portfolio is, risk can never be eliminated completely. You can reduce risk associated with individual stocks, but general market risks affect nearly every stock, so it is important to diversify also among different asset classes both nationally and internationally. The key is to find a medium between risk and return; this ensures that you achieve your financial goals.
Disclaimer: This article is just for the general information of the readers. This is not an investment recommendation. The investment should be made based on one's risk appetite and return expectation. Please consult your financial advisor for more guidance and proper financial advice
Best Regards
Prakash Nair
Certified Personal Financial Advisor (CPFA)
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