Even the biggest fans of the India growth story will tell you that the present good times won't last forever. Even if there is a multi-year rally, there are going to be dips and shocks. History shows that no single market can remain on the top of the wealth creators' list for more than a couple of years at a go. So, when the Indian economy sputters, investors who have placed all their eggs in the India basket will be hit. Here it makes sense to have some investments that bear little correlation to the domestic market. One can be overweight on Indian equities at this stage, but don't have 100% of the equity exposure here. Sentiment can quickly reverse, eroding any gains you have made. Those who have exposure to other markets would be cushioned against any downfall to a large extent. Besides, even during boom times, there might be some economies growing at a much faster clip than ours. India is not the only economy doing well. Irrespective of that, you should have some money abroad. Adding this element of diversification will not only reduce risk but also boost the return in some cases. Having a portion of one's savings in foreign equities is not a luxury but a necessity in an increasingly globalised world.

Such a diversification is multi-pronged because you are investing in a different country, with a different currency. You are taking part in and benefitting from the growth of some of the booming economies of the world. These markets are home to reputed, stable and fast growing companies that can make solid additions to your portfolio. Another benefit is access to unique investment opportunities not available in India.

The element of diversification also extends to currencies. A sharp depreciation in the rupee would hurt your returns from domestic equities, but would boost returns from any foreign investments. The rupee is bound to depreciate more due to the prevailing high interest rate structure. Foreign Investments will then come to your rescue. Over the long term, the rupee is expected to decline in value against the dollar by 4-5% a year. So even if your equity investments in the US see only a mild 8-10% increase in value in dollar terms over the next 4-5 years, a likely decline of 16-20% in the value of the rupee over this period will fetch you an actual yield of more than 24%. The same goes with the value of property bought abroad It is critical that one owns some dollar assets abroad. At some point, some expenses like your child's education will be linked to the dollar. It makes sense to be invested in the greenback.