DOMESTIC equity and fixed income markets gave stellar returns in 2010, backed by strong economic growth. But it is always better not to put all the eggs in one basket and look beyond boundaries for attractive investment options. Overseas diversification will be a more relevant proposition in 2011 as most developed economies are expected to bounce back.
Market experts say about 15-20 per cent of a portfolio could be assigned to such assets.
At present, government rules allow individuals to remit funds up to a maximum of $200,000 abroad for any purpose whatsoever, except to invest directly or indirectly into certain countries such as Mauritius and Pakistan. A family of four can remit $800,000 in a financial year.
There are several ways for an Indian investor to invest in overseas markets.
These investments can be made across asset classes such as equities, debt, currency, commodities or realty.
But it is important to understand the dynamics of the exposure and what it means to the investors' on-shore portfolio.
Opportunities are available in bonds, equities, real ty, commodities, mutual funds and farmland.
According to Macquarie Investment Services, back testing results show absolute return strategy has generated 1 per cent higher returns per annum with 16 per cent lower volatility compared with the return posted by Sensex between February 2000 and December 2009.
Religare Macquaire sees uncorrelated but unique opportunities in real assets in agriculture and infrastructure, which are otherwise not available to resident and/or retail clients.
Growing demand-supply mismatch, rising inflation and low correlation to economic cycles make a very compelling case for investment in farmland.
In the worst 10 years of equities since 1970, farmland assets have consistently increased in value, averaging around 15 per cent a year.
Farmland has offered around 16 per cent a year in rupee terms since 1991, compared with 13 per cent for Sensex and 12 per cent for gold. The private wealth management firm also bets on mining and renewable energy, investment grade corporate issues, fund of funds and listed entities of offshore bourses.
Swapnil Pawar, chief investment officer of Karvy Private Wealth, said most commonly available options are either exchange-traded funds or insurance products.
There are one-off product providers that allow access to broking platforms internationally, which enable purchase of all asset classes available on overseas bourses.
There are feeder funds to overseas markets, which are either sectoral funds; commodity funds; geography-oriented funds or thematic funds such as infrastructure funds.
However, these options are tricky in the present situation in view of the global uncertainty compared with positive return visibility on the domestic front. The problem gets compounded when one takes into account the uncertainty of currency fluctuations. We would encourage a predominant tilt to opportunities funds in India.
