Axis MoneyPlex Knowledge Nugget - 35

3 Top Reasons To Give Your Portfolio a Global Edge

Did you know India accounts for only ~3%i of the global market capitalization. This means that as an investor, if you are only investing in domestic markets, you are missing out on investing in a majority of businesses and growth themes in the global markets.

Also, when it comes to diversification, restricting yourself to only Indian markets increases your portfolio’s concentration risk. In contrast, adding global exposure to your portfolio can help you achieve true diversification.?

Here are 3 key reasons why you should invest globally:

1. Markets have varying risk levels:

Different markets have different risk levels in that developed markets have a lower risk compared to emerging markets. Further, when we seek to lower our risk, we aim to achieve a low correlation among our investments. Correlation is a measure that indicates whether and how strongly pairs of variables are related. In simple words, a high correlation between two markets indicates that they tend to move in the same direction, and vice versa. Thus, with India markets having low correlation with developed markets, it results in reduced risk.

2. Scope for better risk-adjusted returns:

A good investment portfolio aims to achieve maximum returns for minimum risk. There will always be some trade-off between risk and reward. Therefore, we must seek to enhance our risk-adjusted returns. Risk-adjusted returns refer to how much return your investment makes relative to the amount of risk you take. The more globally diversified your portfolio is, the higher the scope for better risk-adjusted returns.?

3. Access to global themes and sunrise sectors:

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