Investing in global equity has become a coveted and popular activity for most investors in today’s times. Why are Indian investors taking like ducks to water as far as global equity opportunity funds or other international mutual funds are concerned? Several developments are reportedly spurring higher interest amongst Indian investors in global equity funds, particularly through the fund of funds (FoF) route or by directly investing in a global equity fund. In recent developments, markets in India have witnessed positive surges, tracking global equity market gains with the outlook indicating further stimulus packages to drive recovery in major nations. The favorable scenario in the global market is driving a lot of domestic investor interest in equities.
A drop in infections in several global nations and returns exceeding expectations are other key factors. Newcomers to the market are finding immense value in diversifying their portfolio and enhancing its overall quality by investing in global stock markets including Europe, the U.S. and China along with Brazil and other Asian markets. There are various international mutual funds that also focus on diverse business sectors. Several U.S. companies like Amazon, Netflix, Facebook, Tesla and Alphabet, among others, have done well and they are better placed as per market pundits, to combat any economic disruptions on account of the COVID-19 pandemic.
Investing in global equity in the U.S. allows domestic investors in India to reap gains from positive trends in another big economy which is expected to overcome the coronavirus pandemic sooner than India itself. Domestic investors are now finding greater value in allocating 5-10% of their overall portfolios towards global equity investments. Many people will also require foreign currency down the line for several long-term objectives and are ready to invest smaller amounts over a decade or so for this purpose. They are also opting for these funds as a result. These objectives include going on a world tour or sending children for higher education abroad among others. These investments will naturally benefit such people since they can capitalize on the rates of the dollar. Diversified and U.S. based schemes are finding more favor with Indian investors as per market experts.
Sectoral exposure is slightly riskier for these global equity funds. Retail investors should not take on major risks in this regard. Investments in a broader index may be better or through a fund here that is a part of a global equity fund. Tax treatment of these funds should also be noted likewise. The schemes will be perceived as debt mutual funds for taxation purposes. If you sell the same prior to 3 years, then returns will be added to your own income and taxed on the basis of the income tax slab which is applicable. If the investment is sold post three years, returns will be taxed at the rate of 20% with benefits of indexation.
You can also consider investments in schemes which fuse international and domestic stocks if possible. This will help with taxation. However, those looking for more diversification and quality upliftment of the portfolio or wish to hedge against currency fluctuations or even high net-worth individuals, may consider pure global equity funds as per experts.