In this article, we’ll discuss all about International / Global Investing.
The world is expanding rapidly, as most industries and opportunities are crossing borders and reaching various countries other than the home country.
One can say that world has turned into a global village, with increasing connectivity in terms of everything. It is only fair to say that investing too shall cross the boundaries of the countries.
This is where; international investing comes into the scene. With global access, an investor can be in India and can invest in various avenues internationally.
So, are you prepared to advance in your investment career by going global? Here’s an easy guide on what global investing is, the method of investing, benefits, and risks associated with it.
What is Global Investing?
Purchasing stocks is similar to investing in a company you believe will experience future growth. This indicates that, in terms of stock investment, there is significant room for development for both Indian and foreign enterprises.
Global or worldwide investment is a means of acquiring financial assets and securities in many nations throughout the world.
It could be used for a variety of things, such as portfolio diversification, better returns, more stability, etc. Real estate, foreign securities, and other types of foreign investment are all examples of global assets.
International investment is all about investing in various financial instruments and securities on a global level that comes from various countries.
Some of the common instruments used for global investment are foreign securities, real estate, etc. One can acquire and invest in these assets for various objectives like,
- For higher investment returns
- For diversifying one’s portfolio
- For better stability in their portfolio in case of economic instability
There are two common ways to approach international investing:
- One can invest in mutual funds from India which hold global equities.
- Or, one can invest directly in any global company’s stock.
These are discussed in detail below.
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Assets to invest in on a global level
All stock markets outside of India are a part of the global market. But if we were to pick one of the most profitable, the United States stock market would come out on top.
One of the biggest reasons why the US share market is said to be one of the most lucrative ones is the presence of big tech companies and some of the major industry leaders.
Most of these businesses are spread globally, and thus their scope is widespread making them legible in every country out there.
Here are the two ways by which you can invest in global stock market instruments explained in detail:
Direct investment in your preferred international company’s stock
Many people tend to have a better insight into the stock market and therefore are far more adept in investing in stocks rather than in mutual funds.
Investing in mutual funds can reduce one’s returns in the long run as one may or may not see the actual profits in their overall returns. But, with direct stock market investment, one can get better and higher returns as proved in past as well.
Invest in Indian mutual funds that hold global equities
When it comes to mutual funds, one of the things to keep in mind is that the investment amount from the investors will be strategically invested in various instruments both domestic and global instruments.
Usually, the mutual fund provider will decide whether to invest in direct investments or debt instruments in the global stock market.
Regardless of what type of mutual funds one does invest in, the cost of investment will increase with international avenues.
This is because the stock broker will take their charges for this indirect investment. On top of the broker fees, investors will also have to pay transaction expenses and other overseas equivalent costs.
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Benefits of Global Investing
International stock investing may seem difficult, but it may help you create a stable portfolio that is robust. Here’s how-
A variety of investment options
Your investment possibilities are not only restricted to your nation when you participate in the global market. You can invest in financial products that aren’t offered in India and profit from big returns.
Additionally, you may invest in foreign equities from many industries. For example, an investor can choose commodities to invest in Australia, technology and engineering in the US market, etc.
Diversity of investments
One of the key advantages of investing internationally is portfolio diversification. Investors are increasingly turning their attention from domestic to foreign markets.
You greatly lower your risk by investing your money in many investment vehicles spread across multiple locations.
Even if one nation has a slowdown in its economy, it won’t have a significant influence on your portfolio because there is typically little connection between geographic areas.
Portfolio diversification is quite helpful in stabilizing investments as it shields the portfolio from the constant volatility of the market.
The profit of exchange rate changes
When the value of the currencies fluctuates, the investors can be on the advantageous side. To help paint a clearer picture, let’s say that at the time an investor bought a US stock, the rupee was trading for Rs. 80 /$1.
And the exchange rate between the rupee and the dollar when this investor sells his investment is Rs.85 /$1.
As a result, in this case, the investor profited from both investment profits and currency fluctuation gains as he paid Rs. 80 for the stock when buying it and received Rs. 85 when selling it.
Investment Security
When it comes to international investing, one of the major benefits is the liquidation and fraud protection on the investments.
When it comes to developing markets, there are strict standards and laws against those who abuse the market along with reliable corporate governance.
This makes sure that the investors do not lose money due to insider trading and fraudulent activity in the market.
However, one thing that investors should keep in mind is that capital or the invested money will always be at some sort of risk even with strong security protocols and fraud prevention.
Reduced and better-controlled Risk
The fact that various markets have varying levels of risk is a major argument in favor of international investing. Developed markets often carry less risk.
Additionally, one should be aware that various markets operate in various ways. As a result, it provides the possibility of generating greater risk-adjusted returns.
Tax-efficient
Numerous nations all around the world provide attractive tax advantages to international investors. These incentives might improve the investment climates in other nations and draw in foreign capital. These rewards or incentives vary from nation to nation.
Risks of Global Investing
International investment has clear advantages. However, one mustn’t forget the investment risks and hazards involved at the same time. While investing globally, there are three common hazards that one should be aware of.
Political Instability
One of the things that affect every business and market in general of a country, is the political climate and the new policies related to the industry.
Therefore, one should pay attention to the overall geopolitical condition of the country from which the investment opportunity is from, to avoid any instability in the internal markets.
Currency Volatility
Currencies fluctuate with time and that is one of the major issues that many investors face while liquidating their investments.
For investing in any international investment, one will have to first exchange the domestic currency with international currency. However, while selling the stocks if the exchange fluctuates, then this can lead to a loss for the investors.
Increasing Transaction Costs
One of the issues faced by many investors is the increased cost of transactions. Now the transaction cost tends to fluctuate from market to market. With increased costs, the cost of investment also increases significantly.
One should keep in mind that the costs will vary and the type of costs and fees will differ from one country to another.
One of the major fees is the brokerage commissions. But along with it, one should prepare for other costs as well like transfers, FX translation fees, annual maintenance costs, etc.
Process for Global Investment
One of the main things that should be kept in mind is that regardless of the type of investment, one should have a Demat account.
Also, there will always be a need for a stockbroker in the global market. Now, the stockbroker will vary from one market to another.
There are two possibilities listed below:
- Open a Demat account with a broker in India who permits investments in funds that invest in foreign equities:
You must create a Demat account with an Indian stockbroker that has access to global equity mutual funds if you intend to invest through one of these funds. However, one should consider the fact that investment returns will reduce significantly if the brokerage fees and cost ratio are not as per the required level and investor affinity.
- Create a brokerage account to make direct foreign investments in global stocks:
The KYC requirements and other important procedural norms will not change. One thing to keep in mind is that not all brokerage firms will allow international stock investment options.
Conclusion
Global market investment is no longer a secondary concern. You may be rewarded with substantial profits and stability.
However, research the market, political climate, and economic situation of the nation you intend to invest in before making any judgments. By making investments in global equities, you may create a strong portfolio and protect it from market volatility.
Although the advantages are significant, you also need to consider the drawbacks. In light of everything discussed above, it is strongly advised that you speak with a financial professional before making any investment decisions.
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