Global ETFs: A guide to investing in international exchange-traded funds

Indian investors increasingly want to diversify their investments outside India's boundaries. One of the options for international investing is using global ETFs. In this article, we discuss what global ETFs are, the potential benefits of these instruments, their structure and types, and the investment process. We also detail the risks to be aware of and the tax implications of investing in global ETFs.

Whether you are new to the concept, or familiar with it, understanding global ETFs can help you determine whether this investment option fits in your portfolio.

• Table of contents

• What are global ETFs?
• Key advantages of investing in global ETFs
• Ideal investor profile for global ETFs
• Step-by-step guide: How to invest in global ETFs
• Understanding the risks of global ETFs
• Taxation of global ETFs in India

What are global ETFs?

Global ETFs are exchange-traded funds that make investments in stock markets across the world. They give investors exposure to businesses outside of India by tracking the indices across many countries. When discussing the global ETFs’ meaning, it’s worth pointing out that these funds provide diversification across multiple geographies, sectors and currencies.

For example, by purchasing global ETFs, you can invest in markets that are growing when your domestic market may be contracting.

Key advantages of investing in global ETFs

Benefits of Global ETFs are as follows:

• Diversification: International exposure lowers the risk associated with holding a geographically concentrated portfolio.
• Liquidity: Global ETFs trade on major exchanges, allowing an investor to buy/sell when they want.
• Market access: You can gain exposure to the economies of developed countries and emerging markets without investing in individual stocks.
• Transparency: Investors can see current holdings and performance at any time.

Ideal investor profile for global ETFs

Global ETFs are suited for investors who seek long-term growth and wish to diversify their portfolios geographically. The ideal investor is:

• A person who values diversification and wants to mitigate risk through exposure to multiple markets.
• Someone who has a moderate to high risk tolerance, as international markets can be volatile.
• An investor aiming to complement domestic investments with international exposure.

Read Also: ETF vs FOF: What's the difference?

Step-by-step guide: How to invest in global ETFs

Investing in international exchange-traded funds through global ETFs is a straightforward process. Here is a step-by-step guide:

1. Research: Understand the markets and indices that the ETF tracks. Identify the sectors and geographic areas that match your investment goals.
2. Select a distributor: Choose a distributor offering these funds under the regular plan. Look for transparency, regulatory compliance, and a user-friendly platform.
3. Open an account: Complete the necessary Know Your Customer (KYC) formalities to invest in international products.
4. Place your order: Decide the amount you wish to invest and place an order. Your selected platform will execute the trade during market hours.
5. Monitor performance: Keep track of the ETF’s performance and review market trends. Adjust your investment as needed based on your financial goals.

Understanding the risks of global ETFs

While global ETFs provide diversification benefits, they are not without risks. Some risks include:

• Currency risk: Fluctuations in foreign exchange rates can affect returns.
• Market volatility: International markets may react to regional or global economic events.
• Political and economic risks: Changes in government policies or economic instability in other countries can impact fund performance.
• Management risk: Poor fund management or tracking errors can lead to discrepancies between the ETF performance and its underlying index.

Read Also: ETF vs Mutual Fund: Meaning, Types, Key Differences and Investment Tips

Taxation of global ETFs in India

Understanding Taxation of Global ETFs is essential. In India, the taxation rules for global ETFs include:

• Capital gains tax: Depending on the duration of your holding period, gains on international ETFs may be taxed as short-term or long-term capital gains.
• Dividend tax: Any dividends received are subject to applicable dividend distribution tax, based on current Indian tax regulations.
• Double taxation avoidance: India has treaties with several countries. Make sure you are familiar with these treaties to avoid paying tax twice on the same income.

Conclusion

Global ETFs offer Indian investors an opportunity to tap into growth beyond domestic markets. By providing diversification, lower trading costs, and easier market access, international ETFs can be a valuable addition to a well-rounded portfolio. However, like all investments, it is essential to assess the risks and benefits carefully. From understanding the global ETFs meaning to following a step-by-step investment process, educating yourself on each aspect is crucial. Additionally, comparing these products with mutual funds can show how they both offer flexibility and diversification—though in different ways—under the regular plan of distributors.

FAQs:

What is a global ETF?

A global ETF is a type of exchange-traded fund that allows investors to gain access to global markets via global indices.

How do I invest in global ETFs?

You can do this by opening an account with a registered distributor that makes this fund available under the regular plan and follow the step-wise plan mentioned above.

Who should consider investing in Global ETFs?

If an investor wants a portfolio with geographical diversification and a moderate to high degree of risk, this is an option worth considering.

Are there risks with Global ETF investments?

Yes. Currency fluctuations, volatility in markets and geopolitical events can all impact performance.

How many global ETFs are there?

The number varies as new funds launch and existing ones evolve. It is best to research current offerings with regulated distributors.

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