We save money in Indian bank accounts, buy property in India and make investments in Indian shares and mutual funds because they provide a sense of comfort and trustworthiness, and there’s nothing wrong with that instinct.
The world’s experienced investors follow one golden rule without exception – do not invest all your capital in one country. Now, Indian investors have also started following this strategy by diversifying their financial portfolios beyond the domestic market, investing in Global Funds, US Stocks and International ETFs.
Let’s explore why this change is happening and whether it would be beneficial for you as well.
The risk of keeping everything in one country
The Indian economy is among the world’s fastest-growing major economies, and it has offered good returns to investors so far, whether through equities such as Nippon India Large Cap Fund or best debt funds. No matter how strong an economy may be, it goes through challenging periods like inflation rises, interest rates change, and the stock market experiences corrections.
If your entire investment is in just one country, then any such event directly impacts your wealth. This is called home bias, where investors invest mainly in companies from their own country because they seem familiar.
Indian markets have experienced these situations even in the past. During the 2008 financial crisis and when the market collapsed in 2020, Indian stocks declined significantly before recovering. Investors with investments spread across different countries could still generate returns rather than depending solely on India.
What global diversification adds to your portfolio
Investing beyond India can make your portfolio stronger. Here’s why:
Exposure to key players in the global market
The global market leaders are some of the largest companies in AI, semiconductor manufacturing, cloud services, and premium sectors, and are not based in India. Investing globally offers you a chance to invest in these companies, which are not listed on the Indian stock exchange.
Less reliance on one economy
In case the Indian economy experiences a downturn, other foreign investments might not be affected. This can help minimise the effect of country-specific risks on your entire portfolio.
Better sector diversification
The Indian market is heavily dominated by sectors such as finance, IT and energy. Investing in international markets offers you an opportunity to gain exposure to industries with low or no presence in India, contributing to a well-balanced investment portfolio.
Currency exposure
When you invest internationally, you get exposure to different currencies like the US dollar and the euro. Though currency exchange rates may fluctuate, having assets in multiple currencies can act as a cushion against any adverse movements in exchange rates.
How smart indian investors diversify internationally
Here are some of the most common ways to invest globally:
- International mutual funds: These are professionally managed funds that invest in foreign businesses, offering a simple way to start investing in global markets alongside a direct mutual fund portfolio.
- Global ETFs: Exchange-traded funds follow international indices or sectors, providing low-cost access to hundreds of companies globally.
- Country or region-specific funds: Investors seeking targeted investments can opt for funds focusing on countries such as the United States, Europe, Japan or other emerging markets.
- Maintaining a balanced allocation: Instead of putting all their investments in foreign markets, smart investors divide their portfolios between India and overseas stocks according to their goals and risk appetite.
- Think long-term: Global diversification works best if considered as a long-term strategy. Rather than pursuing the top-performing market every year, disciplined investors remain invested and rebalance their portfolios from time to time.
Conclusion
Global investments don’t mean turning away from the growth opportunities in India. It simply means not putting your entire future at risk by relying on just one economy. Smart investors view this strategy in the same way they do any other type of diversification strategy. When it comes to the global market, start with small investments, follow the rules and gradually build a diversified portfolio that reflects your interests and goals.
