Foreign shores beckon

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If the Indian markets are worrying you and you want to look for other safe options to park your investible money, why not look abroad?

India is in high inflation mode and as a consequence the Reserve Bank of India (RBI) is increasing interest rates. RBI’s action has had unintended consequences: it has slowed down growth without impacting inflation.

This in turn has affected the stock market and investors’ returns heavily. To diversify your investments, you could explore other markets such as Brazil, China, Botswana, Vietnam, South Africa, and many more which are doing pretty well. Is that possible? Yes and there many ways to go about this.

Investing directly in foreign firms

Investing in foreign market listed companies can be done through IDRs (Indian Depository Receipts). IDR can be bought and sold like stocks. IDRs are issued against shares of foreign firms and are routed through a domestic depository.

Sebi has issued comprehensive guidelines for foreign companies that want to be listed in the Indian stock market by issuing IDR.

There are however some challenges involving in such investments. First, RBI’s guidelines are too complex for many who want to go in for IDR listing. Second, Indian markets are not yet a preferred destination for foreign firms to raising capital.

Third, the Indian market is highly dependent on FII money. If the companies have to depe-nd on FII, they would rather list at the markets where FIIs reside.

Investing foreign market-focused cos

But you could always look at international mutual funds, which in turn invest in foreign markets. There are many fund houses in India that invest in a basket of foreign companies.

These funds are listed in India and investors can buy them like any other mutual fund. These funds are run by professionals, who have good knowledge about foreign markets and companies.

Investors can choose from a gamut of international funds to suit their style and risk profile.

Let’s take a look at some of the international mutual funds listed in the Indian market. This is just to give investors an idea about the range of options available. This, in no way, recommends the funds mentioned in the table above.

Risk and key points to be noted

While investing in overseas markets can be a lucrative option, there are several risks involved. When investors put money in overseas market as compared to domestic market, they must contend with 'country risk'.

This risk involves mainly political instability, a change in economic policies and currency risks. These risks (except currency risk) are there in the domestic market too but we are more aware of them here and they do not come as a surprise.

The markets in emerging economies are not yet matured enough as is the case in developed econo-mies and hence investors will face higher volatility.

The Indian stock market is far more mature than many of the emerging market economies. There will be information lag time between the time the news about a foreign country gets published and the time you receive it.

Hence it will be difficult to take quicker decisions as investors take in case of domestic market.

Finally, many of these funds are new in the Indian market and hence don’t have much to show in terms of past performance.

Hence investors have no way to judge the individual funds than go by the reputation of fund houses. So if you still are interesting in buying into growth abroad, keep these risks in mind.

(The writer is the CEO of bankbazaar.com)