- Date : 21/03/2022
- Read: 4 mins
You should diversify your portfolio as a part of your investing strategy. This means investing in different asset classes. It is beneficial to consider investing in various other geographies if you are willing to expand further. You may invest in other large economies, as well as in India.
One of the most important rules while investing is to diversify your portfolio further. By expanding, it means that you will invest in various asset classes, such as gold, debt, commodities, and equity. You will also invest in large, mid, and small cap stocks within equity. To diversify further, you can also consider investing in other geographies as well. It is recommended to practice this and make it an important part of your investment strategy. You will invest not only in India but in other major economies too.
The biggest problem for investors when it comes to a foreign market is that they don't or cannot monitor it. The second problem is where to invest – direct equity or passive funds? The third question is regarding how much to invest.
Related: Diversify Your Equity Portfolio By Investing In Stocks Overseas
Through this article, we aim to clarify all the basic queries, which will guide you to start investing in foreign economies in the best possible way.
How much to invest in international funds?
If you are just starting your investment journey, there is no need to start investing in foreign funds immediately. Once you have created a decent-size portfolio with Indian equity investment and it is diversified, you can move to the next level – international funds.
You can consider having a 10–15% allocation in the international funds for geographic diversification. If you don't have any allocation, you should first target 5% allocation and then move to 10% and later to 15%. You don't have to do it immediately as it is a process done in a specific manner. You can achieve this allocation in between 6 months and one year. Unless you are regularly tracking the foreign stocks and market, having more than 15% allocation is not the right decision.
Related: Diversifying Investment Portfolio: How Much Should You Allocate To International Funds
International funds: Where to invest?
To start investing in foreign geographies, it is imperative to understand the risk-reward profile of each geography as a first step. Afterwards, you need to narrow down your research to one or two international funds. You should not have more than two international funds – there is no need. It would be best if you chose the developed countries that have a low correlation to the Indian market.
One of the developed countries that you can consider is the US. Next, you have to figure out the category of fund you are going to choose from the US market. You may also consider other markets such as Europe, China, Japan, and Brazil. There are many options today for investors looking for international exposure. However, you should not invest in many, because your goal is diversification and not super high returns.
Whether to choose Active or Passive International Investments?
The best option for developed economies, such as the US, is to invest through an index or passive fund. For developed countries, the historical data shows that most index funds tend to perform better than active funds in the long run.
You can take either route for an emerging market – invest in passive or active funds. It will depend on which market you are choosing.
Ending Note
It is vital that you follow a proper and planned asset allocation on international investing options, but do it with proper conduct and caution. Indian investors have started to look to invest across the US market. For the same reason, more and more fund houses are coming with international investment schemes. It is suggested to understand the pros and cons of each scheme and make an investment-related decision accordingly.
One of the most important rules while investing is to diversify your portfolio further. By expanding, it means that you will invest in various asset classes, such as gold, debt, commodities, and equity. You will also invest in large, mid, and small cap stocks within equity. To diversify further, you can also consider investing in other geographies as well. It is recommended to practice this and make it an important part of your investment strategy. You will invest not only in India but in other major economies too.
The biggest problem for investors when it comes to a foreign market is that they don't or cannot monitor it. The second problem is where to invest – direct equity or passive funds? The third question is regarding how much to invest.
Related: Diversify Your Equity Portfolio By Investing In Stocks Overseas
Through this article, we aim to clarify all the basic queries, which will guide you to start investing in foreign economies in the best possible way.
How much to invest in international funds?
If you are just starting your investment journey, there is no need to start investing in foreign funds immediately. Once you have created a decent-size portfolio with Indian equity investment and it is diversified, you can move to the next level – international funds.
You can consider having a 10–15% allocation in the international funds for geographic diversification. If you don't have any allocation, you should first target 5% allocation and then move to 10% and later to 15%. You don't have to do it immediately as it is a process done in a specific manner. You can achieve this allocation in between 6 months and one year. Unless you are regularly tracking the foreign stocks and market, having more than 15% allocation is not the right decision.
Related: Diversifying Investment Portfolio: How Much Should You Allocate To International Funds
International funds: Where to invest?
To start investing in foreign geographies, it is imperative to understand the risk-reward profile of each geography as a first step. Afterwards, you need to narrow down your research to one or two international funds. You should not have more than two international funds – there is no need. It would be best if you chose the developed countries that have a low correlation to the Indian market.
One of the developed countries that you can consider is the US. Next, you have to figure out the category of fund you are going to choose from the US market. You may also consider other markets such as Europe, China, Japan, and Brazil. There are many options today for investors looking for international exposure. However, you should not invest in many, because your goal is diversification and not super high returns.
Whether to choose Active or Passive International Investments?
The best option for developed economies, such as the US, is to invest through an index or passive fund. For developed countries, the historical data shows that most index funds tend to perform better than active funds in the long run.
You can take either route for an emerging market – invest in passive or active funds. It will depend on which market you are choosing.
Ending Note
It is vital that you follow a proper and planned asset allocation on international investing options, but do it with proper conduct and caution. Indian investors have started to look to invest across the US market. For the same reason, more and more fund houses are coming with international investment schemes. It is suggested to understand the pros and cons of each scheme and make an investment-related decision accordingly.
