Before the end of history shows any sign of arriving, the Reserve Bank of India (RBI) has lit a beacon for the end of isolation. Resident Indian investors will now be able to buy foreign assets. In specific terms, you will be allowed to remit up to $25,000 each, per calendar year, to any place in the world (okay, barring Bhutan, Nepal, Mauritius and Pakistan), without any distinction made between the transaction being on the 'current' or 'capital' account. The funds thus remitted would be free for use in the manner you see fit; you no longer need prior approval from the central bank to buy immovable property, shares, bonds, currencies or any other asset outside the country.

"It's a great step forward in introducing diversification opportunities to Indian investors who have thus far been limited to India alone," says Alok Vajpeyi, President, DSP Merrill Lynch Fund Managers.

Indeed, it's a big move from a broader perspective as well. It integrates India with world financial markets, at least in some minor way, for one. No less importantly, it discourages the illegal flight of capital by offering an official channel. It also speaks of national confidence. The move wasn't a surprise, though, given how the country's tightfisted dollar policy has been changing in response to the rapidly growing forex reserves. In 2003, the RBI announced a series of high-expense forex allowances. Another policy shift, and local investors got access to shares of companies that had at least a 10-per cent stake in a business listed on Indian stock exchanges. Companies, that is, such as Unilever. But what about Coca-Cola, Microsoft and other unlisted standard-bearers of the globalisation story?

Well, now you can buy those too-if the RBI scheme is precisely what it sounds like. That's the good part of a scheme that doesn't nanny the dollars once they exit the country. You could simply plonk the money in a bank deposit in some tax haven, for instance, before you choose how exactly to invest it. The question is: should you start making overseas investments?

Making Use Of It

The immediate benefit that strikes an investment advisor is the risk-diversification opportunity. Foreign assets make for a more diversified portfolio, says Nilesh Shah, Director and Chief Investment Officer (Fixed Income), Franklin Templeton. Just as it makes sense to invest in an assortment of shares, it makes sense to invest in an assortment of countries. It's routine. Global investors avoid concentrating their money in assets dependent on a single economy. That's also why people with enormous rupee wealth like to stash money abroad-just in case.

As a beginner, you can take positions in different currencies simply by holding bank deposits in them. In fact, ICICI Bank is already in the process of rolling out a retail global deposit product that parks your money in foreign currencies (a choice set, so far, of US dollar, British pound, Euro, Swiss Franc and Australian dollar). The tenor choices range from a month to a year. If the rupee falls, you gain even more than the regular interest payment (2.64 to 4.70 per cent, depending on the currency) in return. "This is a plain vanilla product to begin with," says Bhargava Dasgupta, Head (International Banking), ICICI Bank, "Going ahead, it would be a learning process for all of us. We'll roll out value added products in this category after detailed feedback and research on the investment and risk psyche of investors." The only other bank with a similar product available in India, so far, is Citibank.

Mutual Opportunity

Equity investing, of course, would be another major opportunity. Except that it would be a rare retail investor who could claim a good understanding of the game overseas. The fact is, global risks are poorly understood in India. Investors have always felt insulated from big shocks such as the Asian crisis and Russian default, and are unlikely to venture out without any hint of fear.

Equity investors would need expertise, and the easiest access to this is through mutual funds. You may have to be patient, though. "We'd be looking at products in this category only after a while," says Rushabh Sheth, Senior VP and Head (Equity Funds), Kotak Mutual Fund, "since we'd like to wait and see how the whole idea develops, including follow up changes in the regulations."

Caution is evident across the industry. Formulating the funds would mean matching what's permissible with the actual needs of Indian investors. This sounds simple in principle, but is not so in practice. Retail investor motivations, for a start, could vary widely-from those who're thinking in strict return terms, to those who simply want a safety stash. "We would like to introduce products not in a hurry, but work out a strategy on the right side of law. We'll need to start the whole process with a lot of customer education," says Templeton's Shah.

Globe Watch

If you're looking at making direct global equity investments, ICICI Bank is planning tie-ups with brokerages worldwide with whom you could hold an account. So if you dream of meeting Warren Buffet at an AGM some day, you can invest in Berkshire Hathway-the only hitch being that $25,000 is nowhere close to its last NYSE quote of $92,000. The annual dollar ceiling could also pop that dream of owning a beachside cottage on the Mediterranean. Or maybe the Gulf of Mexico. But if it's a US dollar investment you're planning, do not forget this particular currency's expected descent vis-a-vis other currencies. Why? You ought to know by now; to be a global investor, you have to be a globe watcher.

Roller Coaster Ride

Presenting, another edition of the monthly MF scorecard. How has January been? Read on. A BT-Mutualfundsindia.com report.

Want quick bucks? Go for equity. That's the likely advice one would get from any investor who has experienced the thrill of a Bull Run. After January's experience, they may be less gung-ho. For they would've encountered 'volatility'. That word sums up January, with special emphasis on PSU and technology scrips.

Yet, FIIs, used to volatility as a market characteristic, have held steady on Indian equity. Net FII inflows for the month stood at Rs 3,177 crore. Mutual funds were also net buyers, having poured in well over Rs 900 crore. January also saw a tech IPO (Patni) after a long time.

Index Wrap

The bse Sensex and Nifty lost 1.66 and 3.39 per cent, respectively, during the month. Amongst the sectoral indices, BSE it took a big hit, losing over 10 per cent in January, followed by the CNX Midcap 200, losing close to 8 per cent. The BSE Bankex is the only sectoral index that saw appreciation. Globally, in contrast, the trend was upwards. Nasdaq and Dow Jones were up marginally by 2.80 and 0.61 per cent. But the Hang Seng, Strait Times, KOSPI and KLSE rose by 6.09, 4.79, 4.66 and 3.31 per cent, respectively.

MF Performances

Most equity funds saw a fall in their NAVs. Funds with high Midcap and tech exposure were losers (Sundaram Select Midcap and Franklin India Prima Fund). Diversified equity funds on an average lost 4 per cent. Among the trend-buckers, Sun F&C Resurgent India Equity Fund, with just 60 per cent of its corpus in equities, gained on Maruti Udyog and Tata Power. Balanced funds had even more difficulty posting gains (of 27, only two did). Sun F&C Balanced Fund, the January topper, did well on its Tata Motors and SBI bets.

Among sectoral schemes, Reliance Banking Fund has emerged on top with absolute returns of 6.66 per cent, though it reduced its exposure to SBI from a mammoth 26 per cent in December to 10 per cent by the end of January. The fund also has a big exposure to ING Vysya Bank. Equity linked saving schemes, which typically see more action towards the end of financial year, have lost an average of 4 per cent-though some did post positive one-month returns.

Et Tu Sensex?

Has the Bull Run come to an end? Will the 1999-2000 episode be repeated? These are the common questions that are worrying investors at this juncture. The answer? Follow the basic principles of investment. Invest for the long run, realign your asset allocation if required, and don't panic.