Investing in foreign markets can at times be just as beneficial as investing in local markets, maybe more. An investor's portfolio can actually gain in the long run by adding foreign investments to it, even though there are chances that the portfolio may suffer some losses initially. Different cultures, currencies and different rules and regulations can make the market conditions dissimilar, but it may just as well turn out to be profitable as well as educational.
Just as it is advisable not to invest heavily in a particular sector, the same point of view can hold true for geographical locations as well. There can be region-specific influences on stock markets, especially areas with a history of political disturbances or instability. Even apart from socio-political concerns, it is a good idea to diversify an investment portfolio by investing abroad. Diversification helps to balance one's losses should there be any untoward incident in either one's home country or foreign markets.
In recent years conditions in India have become conducive for investing abroad. The RBI by minimizing restrictions for Indians wanting to invest in foreign markets has opened up new opportunities for them. Investors have option of investing in either individual stocks or through mutual funds. For example in 2007 Reliance Money and ICICI Direct opened up foreign markets for investors by allowing them to invest overseas. ICICI Direct in collaboration with US brokers, Penson Financial Services allows investors to trade on major US stock exchanges like NYSE and NASDAQ, while Reliance Money offers similar options for both US and UK stock exchanges.
Apart from individual stocks many Indian mutual funds are investing in foreign markets. Mutual funds have the advantage of low risk, while individual stocks, though carrying higher risk, can cater to individual needs of an investor interested in a specific field. One could start off with a low-risk mutual fund and later switch to individual stocks depending on the comfort level they have gained in international markets.
One of the chief benefits of diversifying abroad is that other markets can offer what one's home market lacks. An American for instance, has few opportunities to invest in coffee, tea, rubber or some other natural resources in local markets, which he can capitalize on in foreign markets. International investment also provides a way to evade devaluation of one's own currency.
Shilpi Ganguly is a blogger who frequently writes on various topics. Find more of her tips on investment planning.
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