Skip to Main Content

Domestic Equity Vs International Equity

In the last couple of years, the US stock markets have given good returns. As a result, many investors have evinced interest in investing in international equity mutual funds. In this article, we will compare the performance of domestic equity vs international equity.
undefined

Rising interest in international equity mutual funds

In March – April 2020, all global markets, including Indian markets, had a big fall. Due to lockdowns, the demand for digitisation and technology went up as people worked from home, shopped from home, and availed various services from home. As a result, the shares of technology companies listed on the NASDAQ and S&P 500 went up. As the US stock markets did well, many investors have evinced interest in investing in international equity mutual funds. In this article, we will compare the performance of domestic equity vs international equity.

International equity
International equity refers to equity shares of companies that are located anywhere in the world outside the investor’s country of residence. For example, for an Indian resident investor, shares of companies like Apple, Facebook, etc. that are listed on US stock exchanges will represent international equities. Some of the well-known stock exchanges in the US include the New York Stock Exchange (NYSE) and the Nasdaq. For an Indian investor, shares of any company listed outside India will represent international equity, but in this article we will focus on US equities as some Indian mutual funds and broking firms offer Indian investors an opportunity to invest in US mutual funds and US equities.

Benefits of investing in international equity

There are many benefits of investing in international equity for Indian investors. Some of these include:

  1. Opportunity to earn superior returns: The Indian markets have given good returns in the last few years. However, as per the performance of MSCI country indices, the Indian market has been the best performing market in only 2 of the last 10 years (2011-2020). On the other hand, the US market has been the best performing market in 6 of the last 10 years (2011-2020). So, by investing in international markets, Indian investors can benefit from superior returns.
  2. Indian currency's depreciation benefit: The Indian Rupee (INR) has steadily depreciated against the US Dollar over time. The Rupee depreciation enhances the returns of Indian investors. In US Dollar terms, the MSCI USA Index gave 15.26% CAGR returns in the last 13 years (2008-2020). However, in Indian Rupees terms, these returns translated into 19.28% CAGR returns due to Indian Rupee depreciation.
  3. Diversification to reduce country-specific risks: The Indian markets have very low correlation with international markets. So, when Indian markets may not be doing well, Indian investors can benefit by investing in international markets which may be doing well at the same time. As per the performance of MSCI country indices, the returns of Indian markets had only a 0.16 co-relation with returns of US markets.
  4. Opportunity to invest in FAANG stocks and others: The FAANG stocks have done exceptionally well in the last few years. As these stocks are listed on US stock exchanges, the only way for Indian investors to participate in the growth story of these companies is by investing in international markets.

Performance of US markets

The US markets, specifically the Nasdaq, have given good returns to its investors in the last 5-15 years period.

As can be seen from the above table, the Nasdaq 100 Index has multiplied 7 times (19.35% CAGR) since 2010. An investor who invested USD 10,000 in the index would be sitting on USD 70,570 as of 2021. These are very good returns. In the last 5 years, the Nasdaq 100 Index has delivered 23.03% CAGR, the S&P 500 Index has delivered 11.83% CAGR, and the Dow Jones Index has delivered 10.70% CAGR returns.

Domestic equities

In the above section, we have understood the benefits of investing in international equities and had a look at the performance of US markets. Now let us look at the returns of domestic equities (Indian markets) and compare them with the returns of the US markets. Investing in Indian markets includes a number of benefits like it is the world’s second fastest-growing economy, it has a booming middle class, it has the potential to deliver inflation-beating high returns with a conducive capital gains tax policy, etc.

To gauge the performance of the Indian markets, most investors look at the performance of two indices: the BSE Sensex and the NSE Nifty.

Performance of Indian markets

Since 2010, the BSE Sensex Index has gone up from levels of around 20,000 to around 54,000, multiplying investor wealth by 2.5 times.

As seen from the above table, during the period 2010-2021, the Sensex delivered a return of around 9.45% CAGR. The Sensex returns (9.45% CAGR) are lower than Nasdaq returns (19.35% CAGR) and S&P 500 returns (11.85% CAGR) during the same period.

Mutual funds for  international investing

In the above section, we saw the performance of US and Indian broad indices. Now let us see the returns given by mutual funds that invest in these markets.

Scheme nameAUM (Rs. crores)1-year3-year5-year
Franklin India Feeder - Franklin U.S. Opportunities Fund3,61029.9526.4724.51
PGIM India Global Equity Opportunities Fund1,26932.3431.7423.97
Edelweiss Greater China Equity Off-shore Fund 1838.8221.1925.9823.13
DSP US Flexible Equity Fund473.4432.9318.0618.82
Principal Global Opportunities Fund3546.4715.4116.85

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/fund-of-funds.html)

Note: The returns are as of 4th August. The one-year returns are annualised, and 3 and 5-year returns are CAGR. The returns are for direct plans with growth option.

As can be seen from the above table, the top 3 international equity funds have given good returns of more than 20% CAGR over the last 5 years.

Returns given by Indian mutual funds

Let us see the returns given by Indian large-cap funds in the last 5 years.

Scheme nameAUM (Rs. crores)1-year3-year5-year
Axis Bluechip Fund28,247.4545.5216.5818.44
Canara Robeco Bluechip Equity Fund3,308.0949.4318.7718.11
Mirae Asset Large Cap Fund26,746.5549.6215.8816.93
Edelweiss Large Cap Fund257.0248.2014.2715.37
Kotak Bluechip Fund2,804.4952.0316.0115.34

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/large-cap-fund.html)

Note: The returns are as of 4th August. The one-year returns are annualised, and 3 and 5-year returns are CAGR. The returns are for direct plans with growth option.

As can be seen from the above table, the top Indian large-cap equity funds have delivered 18-15% CAGR returns in the last 5 years. The returns are lower than the 24-16% CAGR returns given by the top international mutual funds.

Asset allocation – Have a mix of domestic and international equity funds

Appropriate asset allocation requires an investor to have a mix of equity, debt, and gold in their investment portfolio. You should split your equity portfolio further among domestic and international equity mutual funds. You can have 10-25% of your equity portfolio allocated to international equity mutual funds.

With the Glide Invest App, you can get the recommendations for the best domestic and international equity mutual funds based on your risk profile. You will get advice on how to plan and systematically invest towards your financial goals. With Glide Invest, you will get guidance for:

  1. A personalised risk profile assessment
  2. Identifying your financial goals
  3. Appropriate asset allocation
  4. Making a financial plan for each goal
  5. Automating the financial plan
  6. Review and analysis of your financial plan 
  7. Hand holding you till your financial goals are achieved

To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.

Recent Posts
What are SID, SAI, and KIM?
6 mins23 May 2022
BOOK REVIEW: The Psychology of Money
7 mins19 May 2022
Credit Risk Funds are Making a Comeback: Should you Invest?
7 mins16 May 2022
How and When to Rebalance Your Mutual Fund Portfolio?
9 mins12 May 2022
Learning From the Legends: Benjamin Graham & John Bogle
7 mins09 May 2022
Posts by Categories
Tech (1)
Goal Planning (2)
International Investing (3)
Glide Portfolio (3)
Passive Investing (7)
Investment basics (10)
All Stash! (10)

Like What You See? Want to learn the simple ways to make investment stress-free?

Sign up for our newsletter & get the best expert advice & news around the financial world

We won’t annoy you more than once a week, Pinky Promise!

What are SID, SAI, and KIM?

MF advertisements mention: “Mutual fund investments are subject to market risks. Please read the Statement of Additional Information (SAI) and Scheme Information Document (SID) carefully...

BOOK REVIEW: The Psychology of Money

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness is written by Morgan Housel. The 4.5 starred book is recommended for all who care about their money. In this...

Credit Risk Funds are Making a Comeback: Should you Invest?

Credit risk funds have gone through a rollercoaster ride in the last few years. They gave double-digit returns for a couple of years, then negative returns for a couple of years. This...