Be a global citizen and a global investor
The Union Budget 2024 has rationalised the tax structure of different asset classes, including International Fund of Funds (FoFs). Previously, International FoFs were taxed as debt funds at the marginal rate, but they will now attract a long-term capital gains tax of 12.5% if sold after 24 months.
Jul 2024
3 mins read
Share:
The assets under management in International FoFs have increased to Rs. 25,887 crore as of June 2024, from merely Rs. 2,025 crore in June 2019. The number of folios, or investor accounts, in International FoFs surged from 1.27 lakh to 14.53 lakh during the same period (Source: AMFI). Though there has been an increase in investor interest in this category over the last many years, there is still ample scope to take advantage of the benefits that the category provides.
There has been a strong movement towards investing in equities in India, especially among the younger population seeking alternatives to traditional investments. India's stock market capitalization has risen to $5.34 trillion as of August 7, 2024, making it the fourth largest market. (Source: BSE) The equity culture among retail investors is just beginning, and there's still significant growth potential. In a global context, India's market cap is around 10% of the US market cap at $55 trillion as of June 2024. (Source: S&P Global) Global market capitalisation is approximately $110 trillion at the end of 2023 which means that the Indian Equity market is around 5% of the overall global equity market.
Investors with sufficient exposure to Indian equities might consider allocating a portion of their savings to global equities. This can provide exposure to unique themes and companies not available in India, such as luxury products, video streaming, gaming, e-commerce, and globally recognized brands.
Apart from diversification benefits, investors with dollar-oriented goals, such as foreign trips or especially children's overseas education, can benefit from dollar exposure. While the currency impact can be both ways, over the past five years, the dollar has appreciated by 20% against the INR benefiting Indian investors in these global Fund-of-Funds.
The industry offers a plethora of options, including active, passive, thematic, and country-specific strategies for investors seeking global diversification. As of June 2024, there are 55 International FoFs available. Choosing the right strategy can be daunting for investors new to this category.
While it is always recommended to consult a trusted advisor for what would suit your unique requirements, for first time investors, it would be better to not risk their capital into very narrow themes and instead it would be better to invest in a diversified global fund. This benchmark and region-agnostic approach ensures that investors can invest in any geography and company across sectors.
Global funds can also help provide asset class diversification. For example, a Real Estate and Real estate investment trusts (REITs) can provide exposure to themes such as data centers, malls, hotels/resorts & entertainment, and commercial real estate through Real Estate FoFs offered by mutual funds. These funds provide a liquid, diversified, and accessible channel for individual investors to invest into a whole new asset class such as real estate.
As the saying goes, "Don't put all your eggs in one basket." It is wise for investors to diversify beyond Indian equities by adding a global dimension to their portfolios. Global markets often move independently, so a downturn in one region may be offset by stability or growth in another. Exposure to various geographies ensures that a portfolio does not depend solely on the fortunes of a single market.
In an increasingly interconnected world, the opportunity for Indian investors to diversify their portfolios by investing in international markets has been given another boost by the recent tax change. While the Indian market presents ample opportunities, looking beyond domestic borders can help mitigate risk, provide a hedge against local currency fluctuations, and achieve diversification. Being a global citizen and a global investor too is good.
Share:
PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 266 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC)
on the basis of publicly available information, internally developed data and other third-party
sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information,
assure its completeness, or warrant such information will not be changed. The information contained
herein is current as of the date of issuance* (or such earlier date as referenced herein) and is
subject to change without notice. The AMC has no obligation to update any or all of such
information; nor does the AMC make any express or implied warranties or representations
as to its completeness or accuracy. There can be no assurance that any forecast made
herein will be actually realized. These materials do not take into account individual
investor's objectives, needs or circumstances or the suitability of any securities,
financial instruments or investment strategies described herein for particular investor. Hence,
each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard.
The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein.
The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of
the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.
