In the 1970s, the world witnessed a massive increase in oil prices, which led to significant economic changes across the globe. During this period, Japan’s stock market witnessed a remarkable increase, tripling in value, while the US stock market lagged. This was largely due to Japan’s rapidly rising productivity and technological advancements.
The lesson from this experience is that different economies perform well at different times. As an investor, it is crucial to diversify your holdings across global markets to safeguard your investments against market volatility.
The Covid-19 pandemic has caused extreme turbulence in the Indian financial market, and many investors are now seeking effective strategies to diversify their portfolios. Investing in foreign stocks is one way to achieve this diversity.
The Reserve Bank of India’s Liberalized Remittance Scheme permits individuals up to $2,50,000 in a financial year for international money transfer, making it easier to invest in foreign stocks. This allows investors to spread their investments across different economies and asset classes, reducing their exposure to market risks.
While investing in foreign stocks can be rewarding, it is important to do your research and seek advice from financial experts before making any investment decisions. With the right approach, investing in foreign markets can help you achieve a diversified portfolio and protect your investments against market volatility. Let’s delve deeper into why investing in foreign markets is essential for you.
5 Reasons Why You Should Start Investing in Foreign Markets
1. Investment In Global Giants
Investing in foreign markets from India provides access to some of the world’s largest and most successful companies, such as Apple, Amazon, Microsoft, and Tesla to name a few. These companies are not only global giants but also have a track record of delivering consistent returns over the years. Investing in such companies provides Indian investors with exposure to global markets, enabling them to earn potentially higher returns. Additionally, investing in these companies may offer a hedge against currency fluctuations and other risks associated with investing solely in the domestic market.
2. Diversification of Your Investment
When the economy faces a decline, it’s always good to have a diversified investment portfolio. Foreign stocks can be a great option to consider, as they tend to be less impacted during these times. Adding foreign stocks to your portfolio can provide a level of diversification from traditional investments like stocks, bonds, and mutual funds.
In today’s global economy, countries are more interconnected than ever before, making investing in foreign stocks a smart move. Even if your own country is experiencing an economic slowdown, investing in foreign stocks can help you grow your portfolio and reduce the risk of financial loss. By adding foreign stocks to your investment mix, you can potentially benefit from the growth of other economies and expand your investment opportunities.
3. Gains from Rupee Depreciation
One of the significant advantages of investing in foreign markets from India is the potential gains from the rupee depreciation. As the Indian rupee steadily declines against other major currencies, investing in foreign stocks denominated in those currencies can result in significant returns.
This is because when you invest in foreign markets, you are essentially exchanging Indian rupees for foreign currency, which may appreciate against the rupee over time. This can lead to increased returns on your investments when you send your gains back into India. By diversifying your investments into foreign markets, you can potentially benefit from these currency fluctuations and earn higher returns on your investment portfolio.
4. Protection of Your Portfolio
Investing in foreign markets also offers the advantage of protecting your investments from fraud and liquidation. Developed markets usually have strong laws in place that ensure good corporate governance and impose severe penalties for market abuse. This provides a layer of protection to novice investors against scams and losses due to insider trading.
Additionally, many overseas financial institutions offer safeguards against seizure and other risks like the dissolution of the broker-dealer. However, it’s essential to keep in mind that all investments carry some level of risk, and investing in foreign markets is no exception. Despite these risks, investing in international markets can help diversify your investment portfolio, potentially leading to higher returns and increased stability over the long term.
5. Tax Incentives
Another benefit of investing in foreign markets is the possibility of receiving attractive tax incentives. This may sound too good to be true, but many countries offer tax incentives to foreign investors to attract foreign nationals and boost their investment environment. The specifics of these incentives vary from country to country, so it’s essential to carefully check the tax laws and regulations before investing.
For example, some countries may offer reduced or waived taxes on capital gains or dividends, while others may provide tax credits for foreign taxes paid on overseas investments. By taking advantage of these tax incentives, investors can potentially reduce their tax liabilities and maximize their returns on investment.
Investing abroad can open up an array of opportunities for you. With a bit of research, the right strategy and professional advice, you can look forward to potentially higher returns, increased diversification benefits and more. While it’s important to tread carefully and understand the risks involved, the rewards that come with such investments could be well worth it. So why not take the plunge and explore what global investment opportunities are out there? You never know what potential they might unlock!
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
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