When should you start investing in overseas funds?

Overseas investments can help you diversify risk which you won’t be able to do in any other form.

The FAANG stocks are all the rage today; dominant US-based technology companies which are consistently expanding their market share. The acronym specifically represents the share of five companies which are probably part of your daily lives – Facebook, Apple, Amazon, Netflix and Google (Alphabet).

The stocks prices of these companies have delivered anywhere between 50%-100% return since the lows of the market crash in March this year. The expectation is that in the post-pandemic world, they can only gain more prominence and hence, more earnings growth.

But how can you, sitting in India, invest in those stocks which are listed in the US?

The answer lies in feeder funds which are offered by domestic asset management companies in the mutual fund format. You invest in the domestic fund which in turn invests in an international fund that has a portfolio with these companies. There are even overseas ETFs which mirror indices like Nasdaq to give you exposure to these stocks.

Should you add this to your portfolio too?

Is there a right age to invest overseas?

Overseas investments can help you diversify risk which you won’t be able to do in any other form. This diversification can be done with the lowest possible amount through domestic feeder funds that allow you to invest as little as Rs 5000. There is no minimum or maximum age to seek adequate portfolio diversification. What it does is smoothens out the risk of being invested only in one geography which is governed by one set of leadership, industry dynamics, trade dynamics, and regulations.

When you are just starting your investment journey, diversification into equities listed in other geographies may sound far-fetched as you may feel that there is enough opportunity for long-term wealth creation through listed Indian equities themselves.

Just like you can’t time the Indian equity market trend, you will not be able to predict how the market prices move in the US and hence, there is no point in trying to figure out if this is the right time or not. 

While it’s true that Indian equities present a good long-term wealth creation opportunity, diversification which can prove useful ten years later can be useful now as well.

Don’t wait to get older, begin your investing journey by adding a small allocation to overseas funds.

For investors who have some expenses in US dollars or EURO and find themselves converting home-earned rupees to fund those investments, there is merit in adding overseas funds denominated in those currencies. This can help cushion the adverse impact of change in currency value when converted into rupees.

Is this the right time to invest?

Just like you can’t time the Indian equity market trend, you will not be able to predict how the market prices move in the US and hence, there is no point in trying to figure out if this is the right time or not.

What we can say is that global stock markets will remain productive for years to come and allocating to good fund managers will be a useful long-term strategy. Given the current uncertainty in the economic and political environment, a reasonable approach can be to stagger out your investment.

Alternatively, you can begin a regular monthly investment, thereby taking advantage of any downtrend and at the same time not missing out on the opportunity for fear of a correction.

No need to wait to begin this diversification strategy in your portfolio. Allocate a small proportion to start and keep reviewing as your own income and expense dynamics change over the years.

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