Your Fund Portfolio

RT Rajasekaran

It is appreciable that you are looking to add global stocks to your portfolio. Exposure to stocks outside India bring three main advantages: One, it gives you access to niche opportunities that are not otherwise available in India. How else can you invest in the likes of Apple, Facebook or Amazon?

Two, global markets do not always move in step with the Indian markets. In calendar year 2019, for instance, the Dow Jones Industrial Average gained 23 per cent and the S&P 500 jumped 29 per cent.

Other markets such as the Shanghai Composite and the Nikkei 225 index surged 18-22 per cent. On the other hand, the Sensex and the Nifty went up only 12-14 per cent in 2019.

Three, by adding global stocks, you also tend to benefit from depreciation of the rupee against stronger currencies such as the dollar.

Investing internationally through the mutual fund route is also safer than taking direct exposure to individual stocks as it diversifies the risk. The kinds of funds available in India for international investing are plenty. You have funds that invest directly in global equities, such as Aditya Birla Sun Life International Equity, or those that operate with a fund-of-fund (FoF) structure. Franklin India Feeder - Franklin US Opportunities Fund is an example of an FoF. While exchange-traded funds (ETFs) and ETF FoFs such as Motilal Oswal Nasdaq 100 are available, Parag Parikh Long Term Equity Fund invests a maximum of 35 per cent in global stocks and the remaining in the Indian market. Funds that invest across geographies or only in certain select countries, as well as sector/thematic funds such as those that invest in gold, agri-commodities or consumption stocks across the world are also available.

As far as your question on the prudence of investing in international funds is concerned, considering returns are taxed as income, it is to be noted that even gains from investing in Indian equity funds are taxed. Short-term gains (up to 12 months) are taxed at 15 per cent, and long-term gains over ₹1 lakh from equity funds in India are taxed at 10 per cent now. The only point to note here is, if you invest in equity funds available globally, your gains will be taxed as if you had invested in a debt fund in India. Thus, short-term gains (less than 36 months) from global equity funds will be taxed at your slab rate and long-term gains (more than 36 months) will be taxed at 20 per cent with indexation benefits.

Avoiding global equity funds for the sole reason of the difference in the applicability of capital gains tax is not the right way to approach international investing. Rather, you should keep in mind the diversification benefits mentioned above. That said, it is advisable to earmark just 10-15 per cent of your portfolio to international funds. Take the SIP route to average your costs.

You can invest in ICICI Prudential US Bluechip Equity to begin with or Franklin India Feeder - Franklin US Opportunities. Both the funds have consistently been good performers over short and long time-frames of one, three and five years. While the former invests predominantly in large-cap stocks, the latter follows more of a multi-cap mandate. As far as the time horizon goes, a minimum of three years (three years for every SIP instalment) is anyway needed for gains to be taxed as long-term. However, like any domestic equity fund, a horizon of at least five to seven years is recommended.

If the tax aspect still irks you, you can consider investing in Parag Parikh Long Term Equity first, to get an exposure to international stocks, and then branch out to pure global plays later on. Considering that it still invests at least 65 per cent in Indian equities, it will be taxed like any other Indian equity fund.

Send your queries to mf@thehindu.co.in