International equity and debt funds can help diversify portfolios, capture global growth opportunities, and reduce the overall risk of portfolios. International mutual funds help an investor get exposure to companies and economies outside India without having to open foreign currency accounts or manage foreign currencies. Recently, with the rising access to digital platforms and Broking App tools, international mutual funds have become more transparent and convenient.
What Are International Mutual Funds?
International Mutual Funds invest primarily in equities or debt instruments of companies listed outside the investor’s home country. These funds are managed by domestic asset management companies in India but invest the capital in overseas markets through either direct investment or feeder fund structures.
The feeder fund route involves investing in a foreign fund that, in turn, holds international securities. For example, an Indian mutual fund may invest in a fund based in the USA that tracks global indices or specific sectors. The investor can tap into international funding for anything ranging from high-tech companies to global corporations in healthcare, consumer goods, and manufacturing.
Why Are Global Markets Worth a Look?
- Geographical Diversification-A downside to investing in a particular country is the risk from the downturn of its economy.
- Exposure to Global Leaders-An international fund allows investments in companies with global standing in technology, automobiles, pharmaceuticals, and energy sectors.
- Currency Advantage-A stronger foreign currency against the Indian rupee complements the investors in terms of currency appreciation.
- Sectoral Opportunities- Some sectors like AI and renewables are heavily represented in international markets, providing a steady opportunity for the investors to extract profits from global innovation trends.
Types of International Mutual Funds
- Global Funds: The funds that are allowed to invest in any market, including that of the investor.
- Regional Funds: The funds specified to invest in a specific region-for example, the Asia-Pacific or Europe.
- Country-specific Funds: Funds specified to invest only in the market of a particular country-for example, the USA, or Japan.
- Thematic or Sectoral Global Funds: Funds targeting global industries such as technology, energy, or healthcare.
How International Funds Work
International mutual funds almost work like domestic equity funds, except that they are created for foreign markets. Their fund managers invest in international securities either directly or indirectly through a scenario of feeder funds.
When someone puts money in an international fund, it is converted into the currency of that market and then used to buy the global stocks; at redemption, it is converted to rupees again. Currency appreciation/depreciation, alongside stock performance in those foreign markets, will significantly determine the investors’ quoted returns.
Investment can be done using any Broking App, just like domestic mutual funds, with the choices of SIPs or the lump-sum route.
Factors to Consider Before Investing
- Risk and Volatility: Global investments carry market, currency, and geopolitical risks. Along with all these, the fluctuations in the short term are a common feature; thus, it requires a long-term view to be suitable.
- Taxation: For tax purposes in India, these international funds shall be classified as debt funds. Gains from units held for less than three years are added to the taxable income, while gains from units held beyond three years will be charged at 20% with indexation.
- Expense Ratio: Since these funds involve foreign transactions, expense ratios may be higher, albeit slightly, than domestic funds.
- Impact of Currency: Currency depreciation benefits the investors; on the contrary, appreciation, in this case, means reduced returns for investors.
- Fund Objective: Study the fund’s objectives, its benchmark, and the qualitative diversification of its portfolio of investments before deciding whether to invest.
A careful analysis of the above criteria will assist the investors in identifying the appropriate allocation for global exposure.
Fund International Investments
Potential investors can get started by using brokers or online sources for any mutual fund with international investment. The process usually involves:
- Choice of fund depending on its geographical area or theme.
- Assessment of past fund performance and underlying holdings.
- Establish an SIP for wealth creation over time or lump investment for specific goals.
Some investors like to put together their international funds with domestic equity as well as debt instruments forming a diversified balanced portfolio.
Who Should Invest in International Mutual Funds?
International funds are suitable for all types of investors:
- An investor who wants more diversification than domestic markets can afford.
- Medium- to long-term financial objectives.
- Understand the global economic trends and currency dynamics.
- Feels comfortable with moderate risk and short-term volatility.
These funds will act as a complement to an already existing portfolio rather than replace domestic investment.
Conclusion
Investing in international mutual funds is a great way for investors to be part of the growth of global companies and to diversify investment portfolios. By investing in any of the credible online platforms or through a Broking App, investors can easily source investments across sectors and countries. Though this global exposure offers long-term promise, it is important to understand market risks, taxation, and currency dynamics. If there is a careful selection process and disciplined investing, international funds can be a very important aspect of the investor’s overall financial strategy.