Portfolio Construction with Global Diversification

The starting input for the framework is the correlation matrix across regions. Over rolling 10-year windows, the India-US equity correlation has run in the 0.4 to 0.5 range, the India-EM correlation has been higher at 0.6 to 0.7 (reflecting shared EM-risk-on/risk-off flows), and the US-developed-market correlation has been the highest at 0.7 to 0.85. These correlations matter because diversification benefit accrues fastest when correlations are moderate — adding US equity to an Indian equity portfolio reduces portfolio volatility meaningfully, while adding broader EM offers less diversification per unit of risk. The efficient frontier for an Indian resident, when constructed with reasonable forward return assumptions (Indian equity 11-12 percent, US equity 8-9 percent in USD plus INR depreciation 3 percent yielding approximately 11-12 percent in INR, global bonds 4-5 percent in USD), generally produces three commonly-cited allocation regimes that practitioners use as anchor points. The 60/30/10 split — 60 percent Indian equity, 30 percent international equity, 10 percent fixed income or alternatives — suits a younger investor with high India-tilt conviction and moderate global diversification. The 70/20/10 split is more common in practice as the default conservative-default for Indian HNIs who maintain home bias. The 80/15/5 split represents the highest-domestic-tilt regime, often appropriate where the investor's liabilities are entirely INR-denominated and their non-portfolio wealth (real estate, business equity) is also INR-domiciled. Lifecycle adjustment overlays the static framework with horizon-dependent shifts. As an investor approaches retirement, the international allocation should rise materially if any portion of retirement consumption is foreign-currency-denominated — US visits, foreign property maintenance, support for children abroad, or relocation. Sequence-of-returns risk in the 5 years before and after retirement onset is amplified for international holdings due to the FX overlay. The practitioner addresses this through liability-matched currency allocation: each future cash outflow is mapped to its expected currency, and the asset side is shifted to match. This framework discipline survives rebalancing better than ad-hoc reallocation. Rebalancing across geographies typically uses tax-efficient bands — a target weight is set with a 4-5 percent tolerance band, and rebalancing is triggered when the actual weight drifts beyond the band. Tax-efficient implementation matters for international rebalancing post-FY24, as international fund redemptions trigger slab-rate STCG (under 24 months) or 12.5 percent LTCG (above 24 months) on the gain — the practitioner sequences redemptions across financial years and harvests losses where available.