Is International Diversification really necessary for Resident Indian?

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Anon9001
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Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 8:11 am

The correlations for MINDX (Proxy for Indian Equities) and VT is 0.68:https://www.portfoliovisualizer.com/bac ... ion2_2=100

Considering Indian Equities have no dividend witholding taxes and have more favorable taxation than foreign equities why would I want to own foreign equities with such high correlation to Indian Equities? Foreign Equities also have much lower risk free rate than Indian Equities so expected returns are much lower for them than Indian Equities.

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Re: Is International Diversification really necessary for Resident Indian?

Post by bgf » Sun Dec 22, 2019 8:27 am

picking the performance of one country out of many is difficult. id recommend you invest in VT, unless there are drastic tax implications somehow.

im interested to hear what the "100% US" crowd thinks.
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 8:54 am

bgf wrote:
Sun Dec 22, 2019 8:27 am
picking the performance of one country out of many is difficult. id recommend you invest in VT, unless there are drastic tax implications somehow.

im interested to hear what the "100% US" crowd thinks.
Did you read the title of the post? I am Resident Indian not American so me picking Indian equities is not because I want to do a country bet but rather due to tax favorability and less costs.

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Re: Is International Diversification really necessary for Resident Indian?

Post by bgf » Sun Dec 22, 2019 9:04 am

Anon9001 wrote:
Sun Dec 22, 2019 8:54 am
bgf wrote:
Sun Dec 22, 2019 8:27 am
picking the performance of one country out of many is difficult. id recommend you invest in VT, unless there are drastic tax implications somehow.

im interested to hear what the "100% US" crowd thinks.
Did you read the title of the post? I am Resident Indian not American so me picking Indian equities is not because I want to do a country bet but rather due to tax favorability and less costs.
i read it, and i understand.
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 9:18 am

I personally think there is really no use to adding International Equities and a better diversification method is to use government bonds of my country and Gold which is negatively correlated to Indian Equities. Please tell me if I am wrong in this with this as I seen portfolios like Golden Butterfly which have no international equities have good results in Japan even though Japanese Equities given 0% return for near 30 years.

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Re: Is International Diversification really necessary for Resident Indian?

Post by finrod_2002 » Sun Dec 22, 2019 9:38 am

Anon9001 wrote:
Sun Dec 22, 2019 9:18 am
and a better diversification method is to use government bonds of my country
And if India defaults?

I'm not an expert, but couldn't the consequence of that be that both Indian stocks and bonds go down?

Furthermore, as far as I know, correlation of assets is not necessarily constant over time, so I wouldn't base too much my investment choices on that.

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Re: Is International Diversification really necessary for Resident Indian?

Post by TIAX » Sun Dec 22, 2019 9:40 am

OP, what's the difference in tax treatment?

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Re: Is International Diversification really necessary for Resident Indian?

Post by MotoTrojan » Sun Dec 22, 2019 9:42 am

Could you give us the short version of the difference in taxation?

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 9:42 am

finrod_2002 wrote:
Sun Dec 22, 2019 9:38 am
Anon9001 wrote:
Sun Dec 22, 2019 9:18 am
and a better diversification method is to use government bonds of my country
And if India defaults?

I'm not an expert, but couldn't the consequence of that be that both Indian stocks and bonds go down?

Furthermore, as far as I know, correlation of assets is not necessarily constant over time, so I wouldn't base too much my investment choices on that.
I doubt that will happen and if it does I would be have much more important things to worry about then financial planning. This is a very stable country with little to no crime. Indian companies I own already have foreign revenue so I am not totally left out of global economy.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 9:45 am

The taxation is 10% over 1 lakh (Zero tax below 1 lakh) for Indian Equities after 1 year and 20% with inflation indexation after 3 years for foreign equities. With Indian Equities I do not have to pay tax as long as I do tax gain harvesting every year (redeem capital gains below 1 lakh) but with foreign funds I am forced to pay tax even when capital gains are under 1 lakh.

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Re: Is International Diversification really necessary for Resident Indian?

Post by bgf » Sun Dec 22, 2019 9:55 am

0% on india vs. 20% cap gains tax - indian inflation rate... id still hold a substantial portion of foreign equities. while india appears to have a bright future, it also looks like it is going to have a wild ride. nothing is certain. you should still diversify.
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Re: Is International Diversification really necessary for Resident Indian?

Post by JoMoney » Sun Dec 22, 2019 10:03 am

It's really something you'll have to look at and decide for yourself.
I don't know enough about India's stock market to tell you how I would feel about it, but on top of the expenses/taxes, I would be looking at the ability to diversify within that market (some markets are dominated by very few industrial sectors or even just a few stocks). Beyond the correlation of the Indian markets stocks with broader international index, you might look at the volatility/standard deviation and relative size of the stocks. I'm not certain of this, but my guess is from the perspective of India, the international ex-India market has larger less-volatile companies, and even the currencies they're denominated in may be more stable. From the perspective of those of us in the U.S., moving more to 'international' has the effect of increasing exposure to smaller, riskier, more volatile stocks and currencies... So there is a 'risk profile' component to the decision, and despite my belief as a U.S. person that there is less risk involved with holding an all U.S. portfolio, I suspect if I was an in India I might consider it more risky to hold an all India portfolio... that is my opinion as a U.S. person if I was considering an only India portfolio.
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:12 am

I am not doing 100% equity portfolio but rather replication of Golden Butterfly Portfolio. I like it especially because it worked well in Japan a famous case of home bias killing your returns. With holding VWRA/VT I am holding multinationals who are doing business in India like Apple,Microsoft and Alphabet so I am not diversified at all and I think that is the reason for the high correlation with Indian Equities. Also they have higher costs due to dividend withholding taxes,worse taxation and worse expected returns than Indian Equities due to lower risk free rates in foreign countries so I really do not want to invest in foreign equities :mrgreen:

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:19 am

Also Public Provident Fund backed by Government of India is giving 8% tax free returns which is better than the 6.75% expected returns from international equities (using Vanguard 10 year for-cast as reference). This is really making it hard for me to invest in international equities if I know I am going to underperform PPF :oops:

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Re: Is International Diversification really necessary for Resident Indian?

Post by whodidntante » Sun Dec 22, 2019 10:26 am

Home country bias is a thing. There is a contingent on this forum who believe 100% USA stocks and 100% USA fixed income is wise. Some of the arguments they make are similar to OP for Indian investments: cost, taxation, correlation, global trade, American exceptionalism, safer, better business climate, demographics, and whatnot. I happen to disagree, and professionally managed target-date funds and professionally managed target-risk funds are closer to my portfolio than the 100% USA crowd.

OP, this is something you'll just have to decide for yourself. I'm a bit concerned for you because it seems you are only interested in confirmation.

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Re: Is International Diversification really necessary for Resident Indian?

Post by JoMoney » Sun Dec 22, 2019 10:30 am

Anon9001 wrote:
Sun Dec 22, 2019 10:19 am
Also Public Provident Fund backed by Government of India is giving 8% tax free returns which is better than the 6.75% expected returns from international equities (using Vanguard 10 year for-cast as reference). This is really making it hard for me to invest in international equities if I know I am going to underperform PPF :oops:
I'm guessing that Vanguard forecast is denominated in U.S. dollars.
It may be higher if quoted in currencies that experience higher inflation/degradation.
FWIW, India's currency being a higher-yielding currency has exposed it to a lot of inflows from other countries/currencies that are yielding much less.
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Re: Is International Diversification really necessary for Resident Indian?

Post by KyleAAA » Sun Dec 22, 2019 10:31 am

I wouldn't feel comfortable having 100% of my portfolio in any country, so in my view international diversification really is necessary.

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Re: Is International Diversification really necessary for Resident Indian?

Post by chisey » Sun Dec 22, 2019 10:32 am

Anon9001 wrote:
Sun Dec 22, 2019 8:11 am
The correlations for MINDX (Proxy for Indian Equities) and VT is 0.68
0.68 really isn't really a high correlation. That's an r^2 of 46%, meaning more than half of the movement in world stocks isn't associated with the movement of Indian stocks at all.

Because of the favorable tax treatment I would tilt a bit extra toward my home country if I were you, but I'd definitely still diversify internationally.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:34 am

The issue is buying multinationals like Nestle,Unilever really diversification? I already can buy their subsidiaries here Hindustan Unilever and Nestle India. That is what you are getting by buying VWRA/VT. I would have much more confidence in international investing if the index was not so full of those multinationals.

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Re: Is International Diversification really necessary for Resident Indian?

Post by JoMoney » Sun Dec 22, 2019 10:37 am

Going back to my comment about the 'risk profile' aside from just the correlation....
In U.S. dollars, the standard deviation of the "MINDX" fund you mentioned has been 24.82% (Sharpe ratio of 0.61) compared to "VT" 15.20% (Sharpe ratio of 0.72)
LINK
If you're not familiar with the Sharpe ratio, it's a measure of 'risk adjusted return', a higher number generally implies higher returns per unit of volatility/risk.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:46 am

JoMoney wrote:
Sun Dec 22, 2019 10:37 am
Going back to my comment about the 'risk profile' aside from just the correlation....
In U.S. dollars, the standard deviation of the "MINDX" fund you mentioned has been 24.82% (Sharpe ratio of 0.61) compared to "VT" 15.20% (Sharpe ratio of 0.72)
LINK
If you're not familiar with the Sharpe ratio, it's a measure of 'risk adjusted return', a higher number generally implies higher returns per unit of volatility/risk.
My currency is not USD though. The standard deviation is much lower for me 13.68% (5 YEARS):https://www.niftyindices.com/Factsheet/ind_nifty50.pdf

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Re: Is International Diversification really necessary for Resident Indian?

Post by Valuethinker » Sun Dec 22, 2019 10:47 am

Anon9001 wrote:
Sun Dec 22, 2019 10:19 am
Also Public Provident Fund backed by Government of India is giving 8% tax free returns which is better than the 6.75% expected returns from international equities (using Vanguard 10 year for-cast as reference). This is really making it hard for me to invest in international equities if I know I am going to underperform PPF :oops:
This is not like for like.

You have to include currency appreciation or depreciation

If world average inflation is say 2% and Indian inflation is say 6% in the long run the Indian currency will depreciate by 4% pa.

That say 7% global return is c 5% real return.

I'd be wary of over concentration in the Indian index. It is not well diversified and too many companies are dependent upon state political ties for their profits and business decisions.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:48 am

Indian IT and Pharma stocks have large foreign revenue. Is over-weighting those sectors a good proxy for international investing? If not can you explain why? These companies have very large foreign revenue compared to other Indian companies.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Schlabba » Sun Dec 22, 2019 10:49 am

Anon9001 wrote:
Sun Dec 22, 2019 10:12 am
I am not doing 100% equity portfolio but rather replication of Golden Butterfly Portfolio. I like it especially because it worked well in Japan a famous case of home bias killing your returns. With holding VWRA/VT I am holding multinationals who are doing business in India like Apple,Microsoft and Alphabet so I am not diversified at all and I think that is the reason for the high correlation with Indian Equities. Also they have higher costs due to dividend withholding taxes,worse taxation and worse expected returns than Indian Equities due to lower risk free rates in foreign countries so I really do not want to invest in foreign equities :mrgreen:
Then don't. Case closed.

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Re: Is International Diversification really necessary for Resident Indian?

Post by JoMoney » Sun Dec 22, 2019 10:50 am

Anon9001 wrote:
Sun Dec 22, 2019 10:46 am
JoMoney wrote:
Sun Dec 22, 2019 10:37 am
Going back to my comment about the 'risk profile' aside from just the correlation....
In U.S. dollars, the standard deviation of the "MINDX" fund you mentioned has been 24.82% (Sharpe ratio of 0.61) compared to "VT" 15.20% (Sharpe ratio of 0.72)
LINK
If you're not familiar with the Sharpe ratio, it's a measure of 'risk adjusted return', a higher number generally implies higher returns per unit of volatility/risk.
My currency is not USD though. The standard deviation is much lower for me 13.68% (5 YEARS):https://www.niftyindices.com/Factsheet/ind_nifty50.pdf
I don't doubt that it is lower for you without the currency risk, which is why I mentioned that was measured in USD... but it is a relative comparison, do you know what the standard deviation of VT or equivalent is measured in India's currency (Rupee ?)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Is International Diversification really necessary for Resident Indian?

Post by unclescrooge » Sun Dec 22, 2019 10:51 am

Anon9001 wrote:
Sun Dec 22, 2019 10:19 am
Also Public Provident Fund backed by Government of India is giving 8% tax free returns which is better than the 6.75% expected returns from international equities (using Vanguard 10 year for-cast as reference). This is really making it hard for me to invest in international equities if I know I am going to underperform PPF :oops:
PPF has contribution limits. If you are within these limits, it's not a bad idea to maximize that first.

I would diversify away from Indian stocks by at least 20% after that. There have been long stretches where Indian stocks have underperformed. Putting 20% in non-Indian stocks helps avoid long stretches of poor performance.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:52 am

JoMoney wrote:
Sun Dec 22, 2019 10:50 am
Anon9001 wrote:
Sun Dec 22, 2019 10:46 am
JoMoney wrote:
Sun Dec 22, 2019 10:37 am
Going back to my comment about the 'risk profile' aside from just the correlation....
In U.S. dollars, the standard deviation of the "MINDX" fund you mentioned has been 24.82% (Sharpe ratio of 0.61) compared to "VT" 15.20% (Sharpe ratio of 0.72)
LINK
If you're not familiar with the Sharpe ratio, it's a measure of 'risk adjusted return', a higher number generally implies higher returns per unit of volatility/risk.
My currency is not USD though. The standard deviation is much lower for me 13.68% (5 YEARS):https://www.niftyindices.com/Factsheet/ind_nifty50.pdf
I don't doubt that it is lower for you without the currency risk, which is why I mentioned that was measured in USD... but it is a relative comparison, do you know what the standard deviation of VT or equivalent is measured in India's currency (Rupee ?)
I think it would be 1-2% higher due to currency risk so it would actually be even with the Indian index. Of course this is my guess as there are no passive funds here following VT index.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Valuethinker » Sun Dec 22, 2019 10:52 am

whodidntante wrote:
Sun Dec 22, 2019 10:26 am
Home country bias is a thing. There is a contingent on this forum who believe 100% USA stocks and 100% USA fixed income is wise. Some of the arguments they make are similar to OP for Indian investments: cost, taxation, correlation, global trade, American exceptionalism, safer, better business climate, demographics, and whatnot. I happen to disagree, and professionally managed target-date funds and professionally managed target-risk funds are closer to my portfolio than the 100% USA crowd.

OP, this is something you'll just have to decide for yourself. I'm a bit concerned for you because it seems you are only interested in confirmation.
I happen to think it is incorrect but there is an argument for Home Country bias by American investors backed up by 119+ years of returns data.

There is not for India.

OP has career, any property, tied up in India. An emerging economy with many economic and political issues and unstable neighbours.

OP should consider having perhaps 50 per cent of financial assets in non Indian investments.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:54 am

Valuethinker wrote:
Sun Dec 22, 2019 10:52 am
whodidntante wrote:
Sun Dec 22, 2019 10:26 am
Home country bias is a thing. There is a contingent on this forum who believe 100% USA stocks and 100% USA fixed income is wise. Some of the arguments they make are similar to OP for Indian investments: cost, taxation, correlation, global trade, American exceptionalism, safer, better business climate, demographics, and whatnot. I happen to disagree, and professionally managed target-date funds and professionally managed target-risk funds are closer to my portfolio than the 100% USA crowd.

OP, this is something you'll just have to decide for yourself. I'm a bit concerned for you because it seems you are only interested in confirmation.
I happen to think it is incorrect but there is an argument for Home Country bias by American investors backed up by 119+ years of returns data.

There is not for India.

OP has career, any property, tied up in India. An emerging economy with many economic and political issues and unstable neighbours.

OP should consider having perhaps 50 per cent of financial assets in non Indian investments.
Sir I am wondering about the over-weighting certain sectors tied to foreign revenue idea. Is this a good proxy for international investing? These companies derive 60-70% revenue outside India.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 10:55 am

Schlabba wrote:
Sun Dec 22, 2019 10:49 am
Anon9001 wrote:
Sun Dec 22, 2019 10:12 am
I am not doing 100% equity portfolio but rather replication of Golden Butterfly Portfolio. I like it especially because it worked well in Japan a famous case of home bias killing your returns. With holding VWRA/VT I am holding multinationals who are doing business in India like Apple,Microsoft and Alphabet so I am not diversified at all and I think that is the reason for the high correlation with Indian Equities. Also they have higher costs due to dividend withholding taxes,worse taxation and worse expected returns than Indian Equities due to lower risk free rates in foreign countries so I really do not want to invest in foreign equities :mrgreen:
Then don't. Case closed.
Yes but I am really fearing about Japan like situation happening here but I also don't like the higher costs of holding foreign equities :? .

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 11:08 am

Another issue with international investing is the options to do it in India passively are really limited to

1. Hang Seng Bees

Tracks Hang Seng Index. ETF. Illiquid. Charges 1% TER.

2. NASDAQ 100 FOF

Tracks Nasdaq 100. High Sector Concentration in Tech stocks and FAANG. 0.6% TER.

I really don't know if investing these two products is actually a good idea compared to investing in Indian Equities.

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Re: Is International Diversification really necessary for Resident Indian?

Post by MotoTrojan » Sun Dec 22, 2019 11:25 am

It does not take a very large difference in CAGR to offset a 20% tax on withdrawal over an investors lifespan. I think it is nothing short of reckless to be 100% in Indian equities if the only cost delta is a one time 20% tax.

Your mind seems made though; you won’t get validation here. Good luck.

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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 11:30 am

MotoTrojan wrote:
Sun Dec 22, 2019 11:25 am
It does not take a very large difference in CAGR to offset a 20% tax on withdrawal over an investors lifespan. I think it is nothing short of reckless to be 100% in Indian equities if the only cost delta is a one time 20% tax.

Your mind seems made though; you won’t get validation here. Good luck.
You are ignoring that my investment products here are not that good. Nasdaq 100 and HangSengBees. Rest are active funds that charge insane expenses of 2% to invest in foreign equities. I could open Interactive Brokers account but they charge me 3$ (10$ when I turn 25) fee monthly if I don't deposit 72 Lakhs with them. Also I have to do currency conversion because they don't accept INR deposits.

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Re: Is International Diversification really necessary for Resident Indian?

Post by JoMoney » Sun Dec 22, 2019 11:31 am

Anon9001 wrote:
Sun Dec 22, 2019 10:52 am
JoMoney wrote:
Sun Dec 22, 2019 10:50 am
Anon9001 wrote:
Sun Dec 22, 2019 10:46 am
JoMoney wrote:
Sun Dec 22, 2019 10:37 am
Going back to my comment about the 'risk profile' aside from just the correlation....
In U.S. dollars, the standard deviation of the "MINDX" fund you mentioned has been 24.82% (Sharpe ratio of 0.61) compared to "VT" 15.20% (Sharpe ratio of 0.72)
LINK
If you're not familiar with the Sharpe ratio, it's a measure of 'risk adjusted return', a higher number generally implies higher returns per unit of volatility/risk.
My currency is not USD though. The standard deviation is much lower for me 13.68% (5 YEARS):https://www.niftyindices.com/Factsheet/ind_nifty50.pdf
I don't doubt that it is lower for you without the currency risk, which is why I mentioned that was measured in USD... but it is a relative comparison, do you know what the standard deviation of VT or equivalent is measured in India's currency (Rupee ?)
I think it would be 1-2% higher due to currency risk so it would actually be even with the Indian index. Of course this is my guess as there are no passive funds here following VT index.
Because the Rupee tends to be relatively more volatile and faster depreciating currency, I think the volatility would be relatively lower for broad international excluding India... but the "risk" of being exposed to any currency changes at all relative to your Rupee denominated liabilities/expenses is slightly different...
On Morningstar I can look up some funds like the iShares MSCI India ETF (INDA) relative to Vanguard Total-World (VT)
I change the currency it's denominated in at the upper right hand corner of the chart.
Just from eye-balling it, I can see the volatility does go down when changing the currency from USD to Indian Rupee, but it also looks to me that the volatility continues to be even lower for the broad-international VT fund.
Image
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 11:33 am

JoMoney wrote:
Sun Dec 22, 2019 11:31 am
Anon9001 wrote:
Sun Dec 22, 2019 10:52 am
JoMoney wrote:
Sun Dec 22, 2019 10:50 am
Anon9001 wrote:
Sun Dec 22, 2019 10:46 am
JoMoney wrote:
Sun Dec 22, 2019 10:37 am
Going back to my comment about the 'risk profile' aside from just the correlation....
In U.S. dollars, the standard deviation of the "MINDX" fund you mentioned has been 24.82% (Sharpe ratio of 0.61) compared to "VT" 15.20% (Sharpe ratio of 0.72)
LINK
If you're not familiar with the Sharpe ratio, it's a measure of 'risk adjusted return', a higher number generally implies higher returns per unit of volatility/risk.
My currency is not USD though. The standard deviation is much lower for me 13.68% (5 YEARS):https://www.niftyindices.com/Factsheet/ind_nifty50.pdf
I don't doubt that it is lower for you without the currency risk, which is why I mentioned that was measured in USD... but it is a relative comparison, do you know what the standard deviation of VT or equivalent is measured in India's currency (Rupee ?)
I think it would be 1-2% higher due to currency risk so it would actually be even with the Indian index. Of course this is my guess as there are no passive funds here following VT index.
Because the Rupee tends to be relatively more volatile and faster depreciating currency, I think the volatility would be relatively lower for broad international excluding India... but the "risk" of being exposed to any currency changes at all relative to your Rupee denominated liabilities/expenses is slightly different...
On Morningstar I can look up some funds like the iShares MSCI India ETF (INDA) relative to Vanguard Total-World (VT)
I change the currency it's denominated in at the upper right hand corner of the chart.
Just from eye-balling it, I can see the volatility does go down when changing the currency from USD to Indian Rupee, but it also looks to me that the volatility continues to be even lower for the broad-international VT fund.
Image
I accept that VT is lower risk than Nifty 50 but the issue is I cannot access it unless I have 72 Lakhs to invest with Interactive Brokers. The investment products I can access are rather risky. I would like to see chart with Nasdaq 100 if possible. Thank you :beer

MotoTrojan
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Re: Is International Diversification really necessary for Resident Indian?

Post by MotoTrojan » Sun Dec 22, 2019 11:38 am

Anon9001 wrote:
Sun Dec 22, 2019 11:30 am
MotoTrojan wrote:
Sun Dec 22, 2019 11:25 am
It does not take a very large difference in CAGR to offset a 20% tax on withdrawal over an investors lifespan. I think it is nothing short of reckless to be 100% in Indian equities if the only cost delta is a one time 20% tax.

Your mind seems made though; you won’t get validation here. Good luck.
You are ignoring that my investment products here are not that good. Nasdaq 100 and HangSengBees. Rest are active funds that charge insane expenses of 2% to invest in foreign equities. I could open Interactive Brokers account but they charge me 3$ (10$ when I turn 25) fee monthly if I don't deposit 72 Lakhs with them. Also I have to do currency conversion because they don't accept INR deposits.
Not sure what HangSengBees is but a modest holding in the Nasdaq would still be worthwhile diversification from 100% Indian equities for me.

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Anon9001
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 11:41 am

Nevermind I found the standard deviation of Nasdaq 100. Note this is for 3 years only.

https://www.valueresearchonline.com/fun ... erformance

https://www.valueresearchonline.com/fun ... erformance

15.90 Standard Deviation vs 12.36 Standard Deviation for me. It seems Indian Equities are less risker than Nasdaq 100. Not sure if this is good idea to put money in Nasdaq :oops:

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JoMoney
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Re: Is International Diversification really necessary for Resident Indian?

Post by JoMoney » Sun Dec 22, 2019 11:42 am

Anon9001 wrote:
Sun Dec 22, 2019 11:33 am
...
I accept that VT is lower risk than Nifty 50 but the issue is I cannot access it unless I have 72 Lakhs to invest with Interactive Brokers. The investment products I can access are rather risky. I would like to see chart with Nasdaq 100 if possible. Thank you :beer
Here's a chart link that includes NASDAQ composite index
The Nasdaq is also a very narrow index. I don't think anyone on this board would recommend an investment as that only... but having some fraction of that combined with other options available to you may better than any of the single options alone. If it's significantly more expensive though, that might nullify any potential diversification benefit. If you don't have the ability to invest in a broad total world fund, it's a real conundrum you'll have to weigh with the costs and risks you're willing to take.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Anon9001
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 11:49 am

Thanks for all the advice everyone. I think personally I would try to not use 100% Equity Portfolio but rather replicate Golden Butterfly portfolio as all my foreign investment options here are not good to say the least. Hopefully it works as good as it did in Japan :oops:

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Re: Is International Diversification really necessary for Resident Indian?

Post by MotoTrojan » Sun Dec 22, 2019 11:56 am

Anon9001 wrote:
Sun Dec 22, 2019 11:49 am
Thanks for all the advice everyone. I think personally I would try to not use 100% Equity Portfolio but rather replicate Golden Butterfly portfolio as all my foreign investment options here are not good to say the least. Hopefully it works as good as it did in Japan :oops:
20% large cap, 20% small value, 20% short bonds, 20% long bonds, 20% gold? You have Indian small value as an option?

Volatility is risk, but risk/adjusted return is what matters. I bet the Nasdaq has destroyed Indian indices in that respect. Holding uncorrelated, but still volatile assets is the holy grail in investing.

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Anon9001
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 12:03 pm

MotoTrojan wrote:
Sun Dec 22, 2019 11:56 am
Anon9001 wrote:
Sun Dec 22, 2019 11:49 am
Thanks for all the advice everyone. I think personally I would try to not use 100% Equity Portfolio but rather replicate Golden Butterfly portfolio as all my foreign investment options here are not good to say the least. Hopefully it works as good as it did in Japan :oops:
20% large cap, 20% small value, 20% short bonds, 20% long bonds, 20% gold? You have Indian small value as an option?

Volatility is risk, but risk/adjusted return is what matters. I bet the Nasdaq has destroyed Indian indices in that respect. Holding uncorrelated, but still volatile assets is the holy grail in investing.
The author of that portfolio said small cap value at least last I checked his website was not required for it so I can ignore it and use 40% Nifty 50 but I am not sure Nasdaq can outperform Nifty 50 in the future. These are really giant companies like how long they can keep growing before they become slow growing mature companies? I will still include at 20% of portfolio replacing the small cap value just as insurance.

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Re: Is International Diversification really necessary for Resident Indian?

Post by MotoTrojan » Sun Dec 22, 2019 12:14 pm

Anon9001 wrote:
Sun Dec 22, 2019 12:03 pm
MotoTrojan wrote:
Sun Dec 22, 2019 11:56 am
Anon9001 wrote:
Sun Dec 22, 2019 11:49 am
Thanks for all the advice everyone. I think personally I would try to not use 100% Equity Portfolio but rather replicate Golden Butterfly portfolio as all my foreign investment options here are not good to say the least. Hopefully it works as good as it did in Japan :oops:
20% large cap, 20% small value, 20% short bonds, 20% long bonds, 20% gold? You have Indian small value as an option?

Volatility is risk, but risk/adjusted return is what matters. I bet the Nasdaq has destroyed Indian indices in that respect. Holding uncorrelated, but still volatile assets is the holy grail in investing.
The author of that portfolio said small cap value at least last I checked his website was not required for it so I can ignore it and use 40% Nifty 50 but I am not sure Nasdaq can outperform Nifty 50 in the future. These are really giant companies like how long they can keep growing before they become slow growing mature companies? I will still include at 20% of portfolio replacing the small cap value just as insurance.
Could I not say the same about the Nifty 50?

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Anon9001
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 12:16 pm

MotoTrojan wrote:
Sun Dec 22, 2019 12:14 pm
Anon9001 wrote:
Sun Dec 22, 2019 12:03 pm
MotoTrojan wrote:
Sun Dec 22, 2019 11:56 am
Anon9001 wrote:
Sun Dec 22, 2019 11:49 am
Thanks for all the advice everyone. I think personally I would try to not use 100% Equity Portfolio but rather replicate Golden Butterfly portfolio as all my foreign investment options here are not good to say the least. Hopefully it works as good as it did in Japan :oops:
20% large cap, 20% small value, 20% short bonds, 20% long bonds, 20% gold? You have Indian small value as an option?

Volatility is risk, but risk/adjusted return is what matters. I bet the Nasdaq has destroyed Indian indices in that respect. Holding uncorrelated, but still volatile assets is the holy grail in investing.
The author of that portfolio said small cap value at least last I checked his website was not required for it so I can ignore it and use 40% Nifty 50 but I am not sure Nasdaq can outperform Nifty 50 in the future. These are really giant companies like how long they can keep growing before they become slow growing mature companies? I will still include at 20% of portfolio replacing the small cap value just as insurance.
Could I not say the same about the Nifty 50?
No they are much smaller than Nasdaq 100 companies even though they are the largest companies in India. India as far as I know makes up 2% of Global Market Capitalization. US makes up 50-55% Global Market Capitalization and FAANG stocks have very high market caps near 1 trillion mark.

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Re: Is International Diversification really necessary for Resident Indian?

Post by MotoTrojan » Sun Dec 22, 2019 1:39 pm

Anon9001 wrote:
Sun Dec 22, 2019 12:16 pm
MotoTrojan wrote:
Sun Dec 22, 2019 12:14 pm
Anon9001 wrote:
Sun Dec 22, 2019 12:03 pm
MotoTrojan wrote:
Sun Dec 22, 2019 11:56 am
Anon9001 wrote:
Sun Dec 22, 2019 11:49 am
Thanks for all the advice everyone. I think personally I would try to not use 100% Equity Portfolio but rather replicate Golden Butterfly portfolio as all my foreign investment options here are not good to say the least. Hopefully it works as good as it did in Japan :oops:
20% large cap, 20% small value, 20% short bonds, 20% long bonds, 20% gold? You have Indian small value as an option?

Volatility is risk, but risk/adjusted return is what matters. I bet the Nasdaq has destroyed Indian indices in that respect. Holding uncorrelated, but still volatile assets is the holy grail in investing.
The author of that portfolio said small cap value at least last I checked his website was not required for it so I can ignore it and use 40% Nifty 50 but I am not sure Nasdaq can outperform Nifty 50 in the future. These are really giant companies like how long they can keep growing before they become slow growing mature companies? I will still include at 20% of portfolio replacing the small cap value just as insurance.
Could I not say the same about the Nifty 50?
No they are much smaller than Nasdaq 100 companies even though they are the largest companies in India. India as far as I know makes up 2% of Global Market Capitalization. US makes up 50-55% Global Market Capitalization and FAANG stocks have very high market caps near 1 trillion mark.
I would think that size relative to your overall economy is more important than relative size. I don't think you can argue that Nasdaq 100 companies have less room to grow because of their dollar value market cap than Indian companies.

Yes some FAANG stocks are wildly overvalued (Apple actually has a very reasonable market aligned valuation) but overall the P/E of the Nasdaq of ~21 is not crazy at all given the growth focused market we are in.

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Re: Is International Diversification really necessary for Resident Indian?

Post by LazyNihilist » Sun Dec 22, 2019 2:32 pm

Anon9001:

According to https://investor.vanguard.com/mutual-fu ... olio/vtwax India represents 1.1% of the world stock market. I would strongly recommend VT (or its equivalent Total World like VWRA) for Indian investors.

On the bond side, I would go with VAGU (or its equivalent), but there are a lot more options outside of it for fixed income.

I am not familiar with the tax situation of buying these funds vs funds on NSE/BSE. So that has to be taken into account as well.
As to how you purchase these, if you have more than USD100,000 InteractiveBrokers is a good option. If you have under USD100,000 I do not know what good options are available.
The strong do what they can and the weak suffer what they must -Thucydides

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Anon9001
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 2:34 pm

LazyNihilist wrote:
Sun Dec 22, 2019 2:32 pm
Anon9001:

According to https://investor.vanguard.com/mutual-fu ... olio/vtwax India represents 1.1% of the world stock market. I would strongly recommend VT (or its equivalent Total World like VWRA) for Indian investors.

On the bond side, I would go with VAGU (or its equivalent), but there are a lot more options outside of it for fixed income.

I am not familiar with the tax situation of buying these funds vs funds on NSE/BSE. So that has to be taken into account as well.
As to how you purchase these, if you have more than USD100,000 InteractiveBrokers is a good option. If you have under USD100,000 I do not know what good options are available.
Yeah I mentioned earlier about Nasdaq 100 and HangsengBees. Only Nasdaq 100 I consider to be good investment and I will put 20% of my portfolio in it as insurance.

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Anon9001
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Re: Is International Diversification really necessary for Resident Indian?

Post by Anon9001 » Sun Dec 22, 2019 2:36 pm

MotoTrojan wrote:
Sun Dec 22, 2019 1:39 pm
Anon9001 wrote:
Sun Dec 22, 2019 12:16 pm
MotoTrojan wrote:
Sun Dec 22, 2019 12:14 pm
Anon9001 wrote:
Sun Dec 22, 2019 12:03 pm
MotoTrojan wrote:
Sun Dec 22, 2019 11:56 am


20% large cap, 20% small value, 20% short bonds, 20% long bonds, 20% gold? You have Indian small value as an option?

Volatility is risk, but risk/adjusted return is what matters. I bet the Nasdaq has destroyed Indian indices in that respect. Holding uncorrelated, but still volatile assets is the holy grail in investing.
The author of that portfolio said small cap value at least last I checked his website was not required for it so I can ignore it and use 40% Nifty 50 but I am not sure Nasdaq can outperform Nifty 50 in the future. These are really giant companies like how long they can keep growing before they become slow growing mature companies? I will still include at 20% of portfolio replacing the small cap value just as insurance.
Could I not say the same about the Nifty 50?
No they are much smaller than Nasdaq 100 companies even though they are the largest companies in India. India as far as I know makes up 2% of Global Market Capitalization. US makes up 50-55% Global Market Capitalization and FAANG stocks have very high market caps near 1 trillion mark.
I would think that size relative to your overall economy is more important than relative size. I don't think you can argue that Nasdaq 100 companies have less room to grow because of their dollar value market cap than Indian companies.

Yes some FAANG stocks are wildly overvalued (Apple actually has a very reasonable market aligned valuation) but overall the P/E of the Nasdaq of ~21 is not crazy at all given the growth focused market we are in.
Interesting looking at what you said I did look at the constituents of the Nasdaq 100 and they don't look like the junk companies that can fall anytime soon. Indeed if we look at 2008 Nasdaq 100 actually fell only slightly more than S&P 500. I think the bad reputation of this index comes from the dotcom bubble when junk companies like Pets were given high weightage in the index.

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BeBH65
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Re: Is International Diversification really necessary for Resident Indian?

Post by BeBH65 » Sun Dec 22, 2019 2:49 pm

Here are a few references on home country bias. Hope this can help in the decision process.
Also have a look at the other references on this page that speak about global diversification.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

sublimelaconic
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Re: Is International Diversification really necessary for Resident Indian?

Post by sublimelaconic » Sun Dec 22, 2019 3:48 pm

LazyNihilist wrote:
Sun Dec 22, 2019 2:32 pm
Anon9001:

According to https://investor.vanguard.com/mutual-fu ... olio/vtwax India represents 1.1% of the world stock market. I would strongly recommend VT (or its equivalent Total World like VWRA) for Indian investors.

On the bond side, I would go with VAGU (or its equivalent), but there are a lot more options outside of it for fixed income.

I am not familiar with the tax situation of buying these funds vs funds on NSE/BSE. So that has to be taken into account as well.
As to how you purchase these, if you have more than USD100,000 InteractiveBrokers is a good option. If you have under USD100,000 I do not know what good options are available.
Tradestation Global is a good option if you have less than USD 100,000. Main benefit is that it has no inactivity/minimum fees, despite being partnered with IB.

QuantOfAsia
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Re: Is International Diversification really necessary for Resident Indian?

Post by QuantOfAsia » Sun Dec 22, 2019 6:59 pm

Pretend for a moment that you were Japanese in 1989, asking yourself the same question of whether it would be worth diversifying internationally given the excellent recent performance of your home market, and apparent higher taxes and volatility of allocating to foreign markets.

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