Meanwhile, the domestic environment was not conducive\neither. Foreign portfolio investors turned net sellers from July 2019 onwards as\nthe government imposed higher tax surcharge on investment gains, causing the\nRupee to tumble. Though the provision was later withdrawn, it did not have any\nsignificant impact on the Rupee. <\/p>\n\n\n\n
Further, the government\u2019s move to revoke special status\ngiven to the state of Jammu & Kashmir exposed India to political risk. To add\nto the woes, the country\u2019s economy is showing clear signs of a slowdown. At 5%,\nthe GDP growth in June 2019 quarter was at its six-year low.<\/p>\n\n\n\n
[Read:<\/strong> Is Your Mutual Fund Portfolio Strategically Placed As The Economy Slows?<\/a>]<\/p>\n\n\n\n Here are the factors which point to the poor health of the\neconomy:<\/p>\n\n\n\n Global and domestic economic slowdown does not bode well for\nthe Rupee and the capital markets.<\/p>\n\n\n\n Chart: Rupee-Dollar exchange rate in last 1 year<\/strong><\/p>\n\n\n\n (Source: Investing.com)<\/p>\n\n\n\n When market conditions in the domestic market are unattractive,\ninvestors look for opportunities in the overseas market. This enables them to\ngain higher returns if the global markets are performing better than the Indian\nmarkets and to take advantage of exchange rate difference.<\/p>\n\n\n\n [Read:<\/strong> Why You Should Not Ignore Worthy \u2018Value Funds\u2019 Now<\/a>]<\/p>\n\n\n\n One can gain from some investment opportunities only\navailable in a particular international market when they invest in offshore\nfunds. Further, low correlation of domestic market with offshore market can\nenable diversification of the investment portfolio. <\/p>\n\n\n\n However, investment in offshore funds can expose you to\nseveral risks. The performance of your funds will be impacted by the various\nmicro and macro-economic factors affecting the country towards which your fund\nis focused. Any changes in regulations and policies relating to trade, companies,\nindustries, investments, and so on may put your investments at risk. <\/p>\n\n\n\n As international investments have exposure to foreign\ncurrencies, fluctuations in exchange rate can expose you to currency risk.\nUnfavourable political environment in a foreign country can also negatively\nimpact your investments. <\/p>\n\n\n\n Additionally, it is important to know the tax implications\nof investments. For taxation purpose, a fund can qualify as an equity mutual\nfund if it invests more than 65% of its assets in Indian equities. Thus, if an\noffshore fund invests more than 35% of its assets abroad, it will qualify as a\nnon-equity fund.<\/p>\n\n\n\n This means that short-term capital gains will be taxed as\nper the income tax slab applicable to the investor, whereas long-term capital\ngains will be taxed at 20% with indexation benefits or 10% without availing\nindexation benefit. <\/p>\n\n\n\n If the offshore fund invests 65% of its assets in India to qualify\nas an equity fund in India, it will defeat the purpose of diversification.<\/p>\n\n\n\n Should you invest in\noffshore funds?<\/strong><\/p>\n\n\n\n You should invest in offshore funds only if domestic\ninvestment does not provide enough opportunities for diversification of the\nportfolio. <\/p>\n\n\n\n Remember that recent slowdown and a weak Rupee does not mean that India\u2019s growth story is over. The government and the RBI have been taking measures to push economy back to growth and more measures are expected to be announced soon. These actions may start showing results in the medium to long term. On the other hand, all eyes will be on the outcome of the trade talks between the US and China to be held in October 2019. <\/p>\n\n\n\n The Rupee could continue to be under pressure in the near\nterm.<\/p>\n\n\n\n![\"Rupee-Dollar-exchange-rate-in-last-1-year\"](\"http:\/\/blog.certifiedfinancialguardian.com\/wp-content\/uploads\/2019\/09\/Rupee-Dollar-exchange-rate-in-last-1-year-1.png\")
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