Prior to 2004, residents of India required the Reserve Bank of India (RBI) approval for every remittance abroad because the RBI wanted to limit capital outflows.
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The RBI was concerned that excessive outflows would destabilize the rupee and lose its value. The RBI was afraid that if everyone sold the rupee and started buying the US dollar, the rupee would go down and the dollar would go up.
India’s economy is heavily dependent on imports paid in US dollars, which will raise prices for daily necessities and destabilize the economy.
However, the RBI recognized that open cross-border capital flows are important for economic growth. Therefore, in 2004 the RBI enacted a new policy to ease capital outflow management.
This new policy is called the Liberalized Remittance Scheme (LRS). Under LRS, individuals can send money across national borders without seeking approval from the RBI.
Talking to Rajesh Cheruvu, Chief Investment Officer of Validus Wealth, he gave a holistic view of what LRS is and the nuances of global investment.
LRS has made it easier for Indian residents to study abroad, travel and invest in other countries.
Over the years, such remittance limits have fluctuated from $ 75,000 per year to $ 250,000 per year. LRS restrictions can be used for both checking deposit transactions such as travel, education and healthcare, and capital account transactions such as maintaining foreign bank accounts, investing and buying assets abroad.
With the increase in income and wealth, India has certainly seen a steady increase in remittances under this scheme. For the first time in 2015, remittances surged, recording an astonishing growth rate of nearly 80% year-on-year.
Travel, education, and retention of close relatives are the categories that dominate the composition of the funds sent, but capital account transactions such as investments and deposit transfers are consistent throughout.
Remittances have certainly declined during these extraordinary times, but remittances for investment continue to increase.
In fact, the fact that the global market was hit during this period means that resident Indians will take advantage of such modifications and begin investing in other markets even if they are not based on existing investments abroad. I encourage you to do that.
Wealthy customers are consumers of the most well-known technologies and durable consumer goods companies.
The rise in stock prices of the world’s largest companies over the past few years, reach around the world, and hands-on experience with services have stimulated the desire to be part of investor growth.
With the free flow of information about global markets in today’s era, investors have witnessed growth opportunities available to other markets.
Geographical diversification of portfolios is also understood as an important aspect of building a robust portfolio.
Investing in the global market may be a new investment tool for most people, but it must not deviate from the basic principles to be followed.
The portfolio should be assumed with the usual parameters such as individual investment goals, investment duration, risk appetite, liquidity requirements, and other aspects to consider.
Asset allocation according to market scenarios is also the key to a successful start. For example, given the very low interest rates worldwide, there are few options to consider debt allocation.
On top of that, rising global interest rates will probably lead to capital erosion. Therefore, it is important to find a suitable alternative for debt allocation in your portfolio.
A) Global Equity:
When it comes to global investment, equity tends to be the preferred asset class for most Indian investors. The domestic mutual fund industry has evolved over the last two decades as it has become the preferred route for equity investors, especially individual and high net worth investors.
When it comes to global investment, we believe that passively managed exchange-traded funds are a more efficient way to invest in equities. This method is very popular, especially in developed markets.
Some of these ETFs under management are proof of that. What makes them attractive is that, like stocks, it’s easy to make an investment.
Cost ratios for these ETFs range from 0.03% to 1.00% depending on sector or geographic exposure, and executive fees or brokerage for investing in these ETFs tend to be very low, like stocks. ..
Contributing to the popularity of passively managed ETFs is the fact that active managers have not consistently outperformed the market over the long term, especially in developed countries where markets tend to be much more efficient.
C) Long / Short Fund:
For more advanced investors, long / short funds are available that tend to give investors the desired equity exposure in a risk-adjusted manner.
Such funds are likely to be well-equipped to deal with market volatility, as they have the flexibility to take short positions if they have a negative view of the market or certain stocks. increase.
Keep in mind that such funds tend to fall into the higher risk category as they take exposure to the market through simple or sometimes complex derivative market products. Investors are advised to understand the various risks associated with such funds before allocating funds.
D) Alternative Investment Avenue:
Global financial markets are much wider and deeper by asset class. This could be even more witnessed when it comes to alternative investment tools.
Alternative investments can extend to art, insurance, royalty discounts and even litigation financing. Some of these alternative investments are called market neutral because they have nearly zero correlation with traditional stock or fixed income markets.
While it may sound exotic, some of these are working very well and the added value of these investments in the portfolio can be witnessed over a period of time, especially during periods of turmoil. ..
As you can guess, alternative investments tend to be much more risky than traditional asset classes such as equity and debt due to their tendency to have limited liquidity.
The emergence of a number of investment platforms:
The growing interest in global investment among resident Indians has seen the emergence of many investment platforms that facilitate global investment in India over the past few years.
Most, if not all, of these platforms tend to have interfaces enabled by international brokers on the backend. These platforms tend to be very efficient in terms of pricing and execution, making the overall experience seamless.
One of the peculiarities of most of these investment platforms tends to be the fact that they primarily provide access to the listed US markets and tend to provide access to markets around the world. There are very few.
MF investment in the global market:
Traditional investment tools are also paying attention to the growing interest in the global market, and the number of investment trusts investing in the global market in the form of feeder funds is skyrocketing.
In effect, these funds invest in funds located outside India, while outside India invest in global markets.
Such offshore funds tend to have a significant track record in terms of performance and assets under management, making the overall proposal attractive, especially for individual investors who want to gain global exposure with low investment amounts.
Again, funds investing in the US market tend to dominate this area, which seems to have changed recently. The structural stratification added to this adds some additional pricing to the investor.
An important point for investors to be aware of when investing in the global market is the differentiated tax treatment of offshore investment according to investment product, structure and investment route.
Taxation in terms of time and tax rates tends to be different from what applies to domestic investments in the same asset class. Investors are wise to consult with their tax adviser and understand the details before reaching a conclusion.
(Disclaimer: The views / suggestions / advice presented here in this article are by investment experts only. ZeeBusiness advises readers to consult an investment adviser before making financial decisions. It is recommended.)
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