What are Global ETFs?

Have you ever wondered how you can invest in the world’s largest companies, thriving economies, or cutting-edge sectors without leaving India? Global Exchange Traded Funds (ETFs) make this possible by offering a simple and efficient way to access international markets.

Whether you’re looking to diversify your portfolio, tap into high-growth industries, or hedge against domestic market volatility, Global ETFs provide unparalleled opportunities. In this article, we’ll explore everything you need to know about Global ETFs, including their benefits, risks, taxation, and how you can start investing in them today.

Global ETFs Meaning

Global ETFs are simple investment products that give domestic investors exposure to international indices. These ETFs hold a diversified portfolio of global assets, such as equities, bonds, or commodities, and trade on stock exchanges like regular shares.

By investing in a Global ETF, you can participate in the growth of global markets and sectors without the complexities of directly managing foreign investments. This makes them an efficient way to diversify your portfolio and reduce risks associated with concentrating solely on domestic markets.

How do Global ETFs Differ from Domestic ETFs?

Global ETFs differ from Domestic ETFs primarily in the markets they target and the associated risks. While Domestic ETFs focus on assets within the Indian market, Global ETFs invest in international indices, equities, or commodities, providing exposure to foreign markets.

Additionally, Global ETFs carry currency risk, as returns are affected by exchange rate fluctuations, unlike Domestic ETFs. They also enable you to diversify geographically, reducing dependence on a single country’s economy, which Domestic ETFs cannot achieve.

Popular Global ETFs in India

Global ETFs have gained traction among Indian investors looking to diversify their portfolios with international exposure. Here’s a list of some popular Global ETFs available in India.

Who Should Invest in Global ETFs?

1. Investors Seeking Global Diversification: Ideal for those wanting to spread risks across geographies and economies.
2. Long-Term Investors: Suitable for those aiming to benefit from international market and sector growth.
3. Hedging Against Domestic Volatility: Perfect for mitigating risks in case of domestic market downturns.
4. High Risk Appetite: Best suited for investors comfortable with currency and geopolitical risks.

How to Invest in Global ETFs?

• Select the Right ETF

Research ETFs based on your financial goals, comparing expense ratios, liquidity, and historical performance.

• Consider the Regulations

Understand tax implications, currency risks, and the $250,000 annual limit under the Liberalised Remittance Scheme (LRS).

• Invest Through Indian Stock Exchanges

Invest in Global ETFs listed on NSE or BSE using your Demat and trading account.

• Invest Through International Brokers

Use platforms like Interactive Brokers for ETFs not listed in India, adhering to RBI’s LRS guidelines.

• Invest in Indian Mutual Funds Investing in Global ETFs

Opt for Indian mutual funds with exposure to international ETFs for indirect investment.

Global ETFs Benefits

Investing in Global ETFs offers numerous advantages that make them an attractive option for diversifying and enhancing your portfolio.

• Global Diversification

Investing in Global ETFs allows you to diversify your portfolio across multiple countries and economies, reducing the risk associated with reliance on a single market.

• Access to High-Growth Markets

With Global ETFs, you can invest in international markets, including emerging and developed economies, and sectors like technology, healthcare, and energy with significant growth potential.

• Currency Appreciation Benefits

If the foreign currency of the ETF’s underlying assets strengthens against the Indian Rupee, you can gain additional returns from currency appreciation.

• Cost-Efficiency

Global ETFs offer a low-cost way to invest in international markets compared to directly purchasing foreign stocks or mutual funds.

• Ease of Investment

You can invest in Global ETFs through Indian stock exchanges without needing a foreign trading account, making international exposure convenient and straightforward.

• Portfolio Stability

Exposure to global markets can help stabilise your portfolio during periods of domestic economic or market volatility.

Global ETFs Risks

Investing in Global ETFs involves several risks that investors should consider. Currency risk is a significant factor, as fluctuations in foreign exchange rates can affect your returns if the local currency strengthens against the foreign one. Geopolitical and economic risks, such as political instability or global recessions, can impact the performance of the underlying assets.

Regulatory changes in foreign markets and higher operational costs, such as expense ratios, can also affect the overall returns of Global ETFs. Lastly, liquidity risks may arise, particularly with niche or less popular ETFs, making it challenging to execute trades at favourable prices. Despite these risks, thorough research and careful selection can help mitigate potential downsides.

Taxation of Global ETFs in India

Dividends from Global ETFs are taxed as per your income tax slab rate, with foreign withholding tax credited under India’s Double Tax Avoidance Agreement (DTAA). Short-term capital gains (STCG) are taxed at slab rates if the ETF is sold within 12 months, while long-term capital gains (LTCG) qualify for 12.5% taxation if held for over 12 months, provided the ETF is listed on a stock exchange.

Investments through non-listed routes, like mutual funds, require a 24-month holding period to qualify for LTCG benefits. Gains are calculated in Indian Rupees, considering currency fluctuations, and withholding taxes may apply to dividends.

Conclusion

Global ETFs are a powerful investment tool, enabling you to diversify across geographies, gain exposure to high-growth sectors, and protect your portfolio from domestic market fluctuations. While they come with risks such as currency fluctuations and geopolitical challenges, careful research and a well-planned strategy can help mitigate these downsides.

By understanding their benefits, taxation, and investment process, you can make informed decisions and harness the full potential of Global ETFs to achieve your financial goals. As globalisation continues to shape the investment landscape, adding Global ETFs to your portfolio could be the key to unlocking new opportunities and long-term growth.

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