The top holdings of US funds are typically companies such as Amazon, Apple, Microsoft, and so on. These are not US-centric but global businesses. “If investors are concerned about a slowdown in the US or even globally, then large, globally diversified businesses are the safest place to be invested in, as their ability to handle a slowdown is much better than that of most other parts of the markets,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.
All international funds are taxed at par with debt funds in India. Investors get to enjoy the more favourable long-term capital gains tax treatment only after three years. “Exiting early could subject gains to short-term capital gains tax,” says Gupta. However, if the weight of US funds has exceeded the designated allocation in an investor’s portfolio, he may go for some profit booking.
Experts say this is as good a time as any for investors, who don’t have any exposure to international funds, to start investing in them. First, such investors should get their allocation to domestic equity and debt funds in place. “Investors may begin with a 5-10 per cent allocation to international funds in their equity portfolios,” says Belapurkar. Dhawan suggests this should be scaled up to 20 per cent over time for these funds to have a meaningful impact. Belapurkar advises using the systematic investment plan (SIP) route even in international funds to avoid timing risk.
US funds should be the first option of investors diversifying internationally. The US market, which is part of the developed-market basket, has a low correlation with the Indian market. And since these funds are dollar-denominated, they provide a currency hedge. “The Indian rupee has a tendency to depreciate against the dollar over the long run. Acquiring a currency hedge by investing in these funds is especially useful for investors who have dollar-denominated financial goals, such as sending a child to a US university,” says Dhawan. Finally, those entering US funds now should avoid sector-specific funds and stick to broadly-diversified ones.