Investors are on a constant lookout for diversification opportunities in their investment portfolios. Spreading their funds across different asset classes, and diversifying with each asset class helps them minimize the investment risks. Within the gamut of equity investing, many investors want to traverse the geographical country boundaries and invest internationally. International Mutual Funds offer them such an opportunity.
As the name suggests, an international mutual fund invests in companies in foreign countries. Hence, these funds are also called Foreign Mutual Funds or Overseas Funds. Over the last decade, the awareness of investment opportunities around the globe has increased. Investors want to explore international markets and tap into their earning potential. Hence, many international funds have been launched with different portfolio compositions and structures.
While the names might seem synonymous to you, international funds and global funds are not the same. Global Funds invest in securities all around the world including the country in which you reside. On the other hand, International Funds invest in securities around the world except for the country in which the investor resides.
As the name suggests, regional funds invest in companies from a specific geographical region anywhere in the world.
Country Funds invest in securities belonging only to one foreign country. This allows investors to benefit from a specific country’s economy. This does require extensive research.
Global Sector Funds
Global Sector Funds focus on companies belonging to a specific sector in countries around the globe. The primary focus of these funds is to gain exposure in a particular sector.
Here is a quick look at some advantages of investing in international funds:
If you are investing only in Indian stocks, then your returns are affected by the overall performance of the Indian markets. By adding these mutual funds. to your portfolio, you increase the geographic diversification of your investments. This gives you an opportunity to earn from the positive market cycle of another country’s economy too.
Cost-effectiveness of your Investment Portfolio
According to many experts, Indian markets have already hit a high. Hence, by carefully selecting the right fund, you can create a cost-effective portfolio.
Access to international markets under the management of experts
These funds allow you to gain exposure to foreign markets through a qualified fund manager.
Here are some important aspects that you must consider before investing in international mutual funds in India:
There are many risks that come along with investing in these funds. Currency risk is an important aspect. So, if you invest in a US-centric foreign fund and the rupee falls against the dollar, then the NAV increases. This is because you get more rupees for each dollar. Similarly, if he rupee rises, the NAV falls.
The political situation of a country or its economic or social aspects can have a huge impact on the performance of the fund. Hence, you must understand these factors and keep a close eye on the market.
Multiple Economy Benefit
Investing in international funds allows you to benefit from the growth in multiple economies and earn better returns. It also helps you diversify your investments while boosting the quality of your portfolio.
Typically, international mutual funds invest majorly in equity and equity-related instruments of international companies. Since they do not primarily invest in domestic equities, they are not classified as equity funds. Hence, for tax purposes, these funds are treated as debt funds. Therefore, the rules for LTCG and STCG for debt funds apply to these funds too.