Wealth Guide: Why ETFs make a better choice for investors looking to invest in global markets

The Securities and Exchange Board of India’s (SEBI) advice to mutual funds to stop investing in foreign companies has come as a shock to Indian investors who have been aggressively diversifying their portfolios globally in recent years.

Wealth Guide: Why ETFs make a better choice for investors looking to invest in global markets. Source: IANS

The Securities and Exchange Board of India’s (SEBI) advice to mutual funds to stop investing in foreign companies has come as a shock to Indian investors who have been aggressively diversifying their portfolios globally in recent years.

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As of February 1, 2022, the Association of Mutual Funds in India (AMFI) has resolved to cap individual mutual fund overseas investment limits.

The regulator has specified an overall industry level limit of $7 billion for mutual funds to invest in overseas securities and funds and a separate limit of $1 billion for investing in overseas ETFs.

This came as a challenge for investors wanting to invest in the global overseas market. Investors who seek alternative ways to invest in overseas securities may avail of RBI’s Liberalized Remittance Scheme (LRS).

We spoke to Asheesh Chanda, Founder & CEO, Kristal.AI to decode options for investors who plan to invest in overseas assets:

Investors who are looking to invest overseas, have many options to choose from beyond what is offered by Indian asset management companies.

ETFs:

If you are looking to invest in NASDAQ, then you can directly buy the Nasdaq ETFs from a global investing platform. It is easy and affordable.

Investing in ETFs is one of the best way to invest overseas for those who don't have time or interest in stock picking. They have a very low expense ratio and are as liquid as stocks.

In fact, most retail investors in other countries take the route of ETFs, than actively managed mutual funds. Even the range available overseas is vast as compared to what is offered in Indian fund houses.

ETF Baskets are another great alternative for those who want to have a portfolio instead of just one or two ETFs. One can choose a portfolio based on their risk profile or choose a theme like Future Tech if that’s what they are looking for.

If one doesn't have time to regularly track their portfolio, they can also opt for an Algo-managed portfolio. Many investors are trusting their money with Algo as it saves them time and effort.

But the list does not end with ETFs. Indian investors today can invest globally through foreign-registered mutual funds, hedge funds, VC funds, institutional funds.

Hence are not impacted by the limit set by the regulator. Traditionally the ticket size for these were high which made it difficult for many to invest.

But now with technology integration, they are available for as low as $10,000 on platforms like Kristal.AI. Investors looking for market-beating returns prefer actively managed funds over passive ETFs.

Sending money overseas is easy & cheap

Traditionally sending money overseas was a hassle. One was expected to fill out a form and submit it to the branch in person. They would incur $25 to $30 in inter-bank charges. This inconvenience and high fees kept many away from investing overseas directly. But tech has changed all this.

Opening an international investing account is completely digital and just takes 15 mins to open one. Even sending money is digital as most private banks have enabled online LRS transfer.

Plus, you now have payment gateways that enable instant transfer and save on inter-bank charges. Kristal has recently partnered with FlyRemit to offer instant transfer to Indian investors.

So just because the Indian mutual funds have breached the limit, doesn't mean that investors have no option. Kristal has helped Indian investors invest more than $25M in global markets in 2021.

Once investors start the journey through the direct route, only very few go back to investing with international funds offered by Indian fund houses.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)

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