The Reserve Bank of India has permitted resident individuals (Indians) to remit up to $25,000 per calendar year for any purpose. This has thrown up a lot of opportunities for investors.
Here we take a look at the guidelines and also some investment opportunities that are now available to you.
The relevant extract from the RBI guidelines
"Resident individuals may freely remit up to US $25,000 per calendar year for any purpose."
Who is eligible?
All resident individuals are eligible. This facility is not available to corporates, partnership firms, et cetera.
Purpose?
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For any current or capital account transactions, or a combination of both;
- To acquire and hold immovable property or shares or any other asset outside India;
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To open, maintain and hold foreign currency accounts with a bank outside India.
This facility is in addition to those already available for private travel, gift remittances, studies, donations, et cetera, i.e. you can remit $25,000 per annum over and above the remittances that are permitted under any other exiting guidelines. Download the RBI press release for a detailed note on the guidelines.
In short, we now have the option of going global, as far as our wealth management is concerned!
And just in case you had hopes of building a stock portfolio like Warren Buffett's, now is the time to do it!
Why invest in global markets?
The rationale for investing in global markets is straightforward:
1. To diversify your portfolio and to minimise risk. For example:
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Currency risk: A depreciating Indian rupee will make you relatively poorer globally. Being invested in different currencies will reduce any such risk. Although the Indian rupee has recently gained 5 per cent against the US dollar, it continues to fall against other currencies like the British pound and the Euro.
- Event risk: If India were to be hit by some major calamity or there is an event which throws the entire economy off gear, all your Indian assets would respond in a similar manner. On the other hand if you were invested in different markets across the world, the likelihood of all responding in a similar manner is greatly reduced. But unusual events like the 9/11 terror attacks and the fear caused by SARS can have an impact on all global assets.
To benefit from opportunities available outside India. Indian companies may be growing and shining, but so are companies in other parts of the world.
But where to invest?
You could consider making investments in:
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Bank accounts -- very low returns and very low risk.
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Corporate and government bonds and debt mutual funds -- little higher returns and little higher risk.
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Equities and mutual funds -- a better investment over a longer time horizon, although equities can be more volatile (risky) in the near term.
How to invest?
There are four ways you can invest money in global stock markets:
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Invest directly in stocks (on your own by opening an online account with a broker).
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Opt for the services of a portfolio manager.
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Invest in mutual fund schemes being launched in India for the purpose.
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Invest in mutual funds already in existence overseas.
Personalfn and Equitymaster assist you in planning your investments in the global markets. To know more about investing globally, click here.
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