It is a well-known fact that investment biases impact rational decision making and hurt investor returns. One of the big biases is the “Home Bias” – investors tend to invest more of their assets in the country and community they live in rather than globally. In India, the home bias is even stronger as there is a strong belief that India can grow at a rapid pace for a long period of time and the Indian markets can offer a potentially higher return.
In this blog, I would like to share some interesting facts that can help you overcome your home bias and encourage you to invest globally.
There are unlimited opportunities to invest overseas
Here are 10 interesting facts for you to consider
- The world market capitalization is over USD 50 trillion.
- The market capitalization of India is just over USD 2 trillion.
- USA dominates the world stock markets and has over 50% of the world market capitalization.
- Indian stock markets is just 4% of the world stock markets.
- Only 2 companies (TCS and Reliance) from India feature in the top 100 listed companies in the world.
- The top 10 technology companies in the world are listed outside India.
- The top 10 healthcare companies in the world are listed outside India.
- The top 10 commodity companies in the world are listed outside India.
- The top 10 financial services companies in the world are listed outside India.
- The top 10 consumer companies are listed outside India.
Technology is the leading growth driver across the globe
Technology has been the growth driver for growth over the last few years
In the last 5 years, the real growth has been driven by Technology. The 5 biggest technology companies are part of the NASDAQ and if you invested only in India, you have missed the tremendous growth that these companies have delivered. These are popularly called as FAANG stocks – Facebook, Apple, Amazon, Netflix and Google.
Winners Rotate
This is an obvious one. India stocks have done well over the last decade but when you compare on a year to year basis, there is no single country that wins every single year. This is the reason why global diversification can add tremendous value to your investments. You can reduce the volatility in your investment returns by spreading your investments across global markets.
Rupee Depreciation adds to your return
The indian currency has weakened significantly over the last decade. Over the last decade, the rupee has slipped from Rs 43 to over Rs 70 over the last decade. The rupee deprication itself would have added over 5% CAGR to your overall returns.
Your children are likely to study abroad
As India has grown wealthy, there is a big shift in terms of our education and travel spends. Overseas education is expensive. A four year under-graduate degree from USA costs more than Rs 2 Crores. Not only that, there is a growing tendency amongst indians to study in schools that offer the IB and IGCSE curriculum. Even if you are paying your fees in local currency, part of it has to be remitted as Royalty to the institutions that manage these programs. Obviously if the Indian Rupee depriciates, you would have to shell out that much more for these fees.
What are your investment options to invest overseas?
For several years, Indian investors would have to repatriate to invest overseas. That is no longer the case. The indian mutual fund industry offers a variety of choices that you can use to invest overseas. You can choose a fund basis geography or sector or indices basis your preference. The taxation for these funds is similar to the taxation of debt funds in India. This means that you can avail the benefit of long term capital gains if you invest for a period of over 3 years.
Conclusion
Our life is surrounded by products and services that are manufactured overseas. We use apple phones, eat Mcdonalds burgers, drink starbucks coffee, socialise on facebook, watch our favourite shows on Netflix, shop on amazon, get all our information on google, and the list goes on! Its time we own these companies in our investment portfolios as well! There is no reason why we should let our home bias impact our investment performance.
2 thoughts on “Why it makes sense to invest overseas?”
Which one is the best foreign fund in India to invest in and get handsome returns in future ?
Quite an eye opener as I had never compared annual gains and losses of different countries.
Well written, thank you for enhancing my awareness
Cheers
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