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Warren Buffet once said, “If you don’t find a way to make your money work while you sleep, you will work until you die.” Veteran investors across the globe understand that successful investing practices are about managing risks across a diversified investment portfolio and not about avoiding them. India is a wealth-generating economy driven by a traditionally instilled savings culture.
The world’s most affluent asset managers always recommend that one refrains from putting all their eggs in one basket to yield the best results. While Investment Gurus in India habitually suggest diversification of one’s portfolio across asset classes, they often miss out on the importance of inculcating a mix of geographically divergent investment options.
Conventionally, there is an inclination towards parking money in private/public banks to yield an annualized interest rate. Indian investors are also open to carefully investing in domestic funds, gold, real estate, and tactfully playing the stock market amongst other domestic options. In the current times, investments in cryptocurrency are also on the rise, with the audience divided equally in favor of and against this digital currency.
Moreover, the volatility in global economics and the catastrophic fiscal impact of the Covid-19 pandemic has transformed the way people perceive investments. As a result, there is an increased consciousness amongst the population who are not only focused on the current ROI on their investments but also on the ‘real rate of interest’ and the value of these returns over some time.
Smart diversification of your overall financial portfolio to international markets can mitigate risks and generate higher returns. Gains on bank deposits in India average at approximately 7 percent, and the country’s inflation is at around 6 percent. Factoring in the depreciation of the rupee against global currencies like $, €, etc., we can expect that the trend will be similar in the near future.
Knowledgeable investors are thus increasingly realizing that locking their capital in foreign funds could be beneficial irrespective of the returns. To put this simply, Indian HNWI’s are beginning to acknowledge that money invested domestically is devaluating faster than available overseas investment options.
For example, the returns earned on Rs 10,000 invested would be of lesser ‘real value’ over the next ten years when invested in India as opposed to returns made on the same savings in $ due to the appreciating nature of the currency and the comparatively lesser economic inflation. This means over the next decade, investors would be able to purchase more with the yields of their investments in the US.
While Indians are actively choosing to invest in various demographies, the United States is one of the most popular destinations. The investment portfolio and opportunities available are unparalleled. Silicon Valley continues to be the home of some of the world’s most promising start-ups, and the country at large houses some of the globe’s biggest corporates. This implies that private equity offerings in the US are highly competitive but rewarding. Similarly, the reach offered by fiscal investments in the country of dreams is also unmatched. Favorable Taxation Rules for Indian investors in the US stocks at 25 percent also make the nation an attractive proposition for HNIs.
Private equity real estate investments can provide attractive tax benefits. Two of the most significant tax benefits for many real estate investors are pass-through depreciation and long-term capital gains treatment, which currently has a more favorable tax rate than the ordinary income tax rate. The economic stability of the US market despite incoming hurdles is also commendable, making the proposition of private equity investments advantageous for foreign nationals.
Investing in alternative investment classes such as private equity real estate often has a low correlation to traditional asset classes. As a result, combining both conventional and alternative investments aids in creating a potentially higher blended risk-adjusted return within investment portfolios. In addition, when we specifically talk about private equity, we can anticipate more pricing stability due to the lower liquidity. This can especially be useful during volatile occurrences in the stock market.
The author, Pete Calabrese, is CEO at CanAm Investor Services. The views expressed are personal