While we spend a lot of money overseas, in vacations, in watching the world cup football matches live, or education abroad, do we invest internationally? Click the link below to read my article in investing internationally:

Invest in international markets through mutual funds

The English translation of the article is as under:

As per a recent report, India was among the top 10 countries in terms of buying the tickets for the FIFA World Cup – the gala event of football, held at Russia. This was the case in spite of India not even qualifying for the football world cup. India is among the countries sending the largest number of students for study abroad. Indians are spending abroad, big time.

This means, many of the expenses incurred by Indians are in Foreign Currencies. In such a case, when the Indian Rupee depreciates against any currency of another country, the expenses go up. Let us look at this through an example:

Some time ago, Ganesh planned to go for a vacation to the US. The exchange rate at that time was US $1 = Rs. 65. Now when he actually travelled the Dollar has appreciated against the Rupee and the exchange rate stands at US $1 = Rs. 69. A budget of Rs. 1,00,000 went up to approximately Rs. 1,06,000 – an increase of 6% in no time. This happened in a very short time.

Now let us imagine that Mrs. and Mr. Joshi were planning to send their daughter for post-graduate studies overseas after three years. They had assumed total expenses to be in the range of Rs. 50 lacs to Rs. 60 lacs for the whole course. If the Rupee weakens by 15%, the budget increases by Rs. 7.5 lacs to Rs. 9 lacs. This may lead to a situation that either the kid cannot go abroad for studies, or some other goals of the family may suffer.

What can one do in such a case? Well, there are a few options to protect oneself against such currency fluctuations. One of these options is available through mutual funds investing in international equities.

Today in the Indian market, we have funds investing in the US, Europe, China, Asian economies, Emerging Markets, etc. These funds offer some major advantages:

• Through the investment in these funds, one can get a currency exposure, if required
• One can achieve international diversification, which reduces the adverse impact of any movements in the individual markets or individual currencies. However, the risk of global equity markets cannot be removed from the portfolio.
• Many opportunities are not available in India, especially in the technology sector or even some global giants.

On the other hand, there are a few disadvantages:

• We do not have schemes available in any asset class other than equity. So one cannot take any currency exposure through international mutual funds if the time horizon is short
• Understanding currency fluctuations is tough. If one wants to invest by taking a view on currencies, one may stay away from mutual funds and use other means.
• Though these schemes invest in international equity markets, these are not treated like equity funds for the purpose of taxation. This means, one may have to shell out higher taxes.

So while these options are available, one would have to take good care before investing. Most of you would be better off taking some professional help.

– Amit Trivedi