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Limits don't matter

With the limit for investing abroad being raised, now is the time to make the best of the opportunity through a step-by-step process, writes Arnav Pandya.
None | By Arnav Pandya
UPDATED ON OCT 16, 2007 01:12 AM IST

The limit for investing abroad has now been raised to $200,000 per year per person. While on one hand this signifies an opportunity for individuals to invest money abroad, there is a second way to look at this.

There's very little clarity on the way and the manner of investment abroad and hence there is likely to be little use of the limit even after the increase. In order to get ready to make the best of the opportunity there has to be a step by step process that can be followed.

Differentiate the investments

Most people tend to put investments abroad as one whole unit but the truth is that there has to be a differentiation among various parts of the investment basket. One cannot club a deposit in a bank abroad with an investment in real estate and hence there has to be separation of these areas and then each of them has to be handled in its own specific manner. This kind of separation will also give a better idea to the individual of the features of each of these areas and the suitability for them.

Look at your funds

There is a tendency to look at the total amount that can be invested while making an investment decision. This often causes a problem for several people. For example just because there is a limit of $200,000 available it does not mean that every person has to invest that particular figure. The financial position of the individual along with the available funds should be the actual point that determines the investment. If the amounts are small then it might not make much sense looking abroad because various expenses will make the investment less attractive.

Home might be better

While evaluating a foreign investment also consider the situation in India because comparisons among foreign locations might not be enough. The position at home might be such that there is no need to go abroad and investments here would be enough. This is the position in equity and it might be a similar story elsewhere. This factor also has to be brought in the picture for correct comparison.

Look for wider options

In many cases the options for foreign investment are restricted. For example it might be very profitable to invest in other emerging market economies but the options on the table might not allow that. This could mean that several of the real options are actually not available for the investor. One must guard against this and only the best investment options should be chosen.

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