Investing in International markets is a good way to diversify your investment portfolio. The geographical diversification can provide a shield against risk from local market volatilities.
One of the effective ways to invest in the international markets is by putting your funds in a pool of securities.
Investing in mutual funds can prove to be beneficial because it is managed by market experts and hence, you won’t have to monitor your portfolio frequently.
A profitable international mutual fund is the one that has provided a decent return between 10-15% in a long term.
Even though it saves you the efforts of picking suitable retail stocks and bonds, you must do proper research before investing in an international mutual fund.
This article will teach you everything you need to know about international mutual funds including their benefits, profitability, and cautionary measures before investing in them.
It will also explain how to pick the right mutual fund that complies with your long and short term goals and your risk appetite. Read along to know about the Best International Mutual Funds In India.
List of Best International Mutual Funds In India
- Franklin India Feeder Franklin US Opportunities DirectFund-Growth
- ICICI Prudential US BlueChip Equity Direct Plan-Growth
- Edelweiss Greater China Off-Shore Fund Direct-Growth
- PGIM India Global Equity Opportunities Fund-Growth
- Motilal Oswal Nasdaq 100 Fund of Fund-Growth
- Aditya Birla Sun Life Global Emerging Opportunities Fund-Growth
- DSP BlackRock US Flexible Equity Fund-Growth
- DSP BlackRock World Mining Fund-Growth
- Edelweiss Europe Dynamic Equity Off-Shore Fund-Growth
- Principal Global Opportunities Fund
Types of International Mutual Funds
There is a wide range of investment options available when it comes to investing in International Mutual Funds. They are of many types, and you need to identify which one is the most suitable for your portfolio.
1. Thematic International Funds
Thematic International Funds invests in sectors pertaining to a specific theme. They contain a basket of securities from a particular sector only, and all the stocks would belong to the companies of the same sector.
For example, DSP BlackRock World Mining Fund invests in companies involved in the mining business. If you are bullish about a particular sector like IT or FinTech, you can invest in a thematic international mutual fund to gain profits from that sector.
2. Regional Funds
Regional Funds invest in companies based out of a particular geographical region. The portfolio is usually diversified with all the profitable sectors in that region.
You can invest in Regional Mutual Funds if you predict the positive progress of a particular region. For example, Edelweiss Europe Dynamic Equity Off-Shore Fund invests in European countries.
3. Country Funds
A Country Fund invests in the securities of one particular country only. By investing in such funds, you can reap the benefits of the country’s over economic progression, but on the other hand, your portfolio is exposed to political volatilities. The DSP BlackRock US Flexible Equity Fund is an example of a Country Fund.
4. Global Markets Funds
Global Markets Funds invests in companies from all over the world by identifying key sectors in each country. Investing in such funds proves to give higher returns but is also full of risks.
It provides you with proper geographical diversification by giving you returns from countries across the globe. For example, PGIM India Global Equity Opportunities Fund invests majorly in foreign countries.
Why invest in International Mutual Funds?
International Mutual Funds majorly invest in equity and debt instruments of foreign countries. This provides worldwide diversification to your portfolio and helps you balance the risk.
Moreover, the Indian Stock Market has a lower correlation with the stock markets of countries like the US. Hence, if the Indian market witnessed a crash, you still earn profits from your investments in the US.
Over and above that, when the value of the Indian currency depreciates, you can even get returns in terms of foreign exchange.
Investing in International Mutual Funds enables you to invest in sectors from more than one country. For instance, you can invest in Germany for automotive, the US for technology and the Middle East for the petrochemical industry.
It is less likely for sectors all over the world to collapse altogether. Hence your investments are protected with backups from many countries and regions.
Through international mutual funds, you can invest in your favourite brands like Google, Apple and Netflix. This way, you’re not only their best customer but also their investor.
Hence, if you wish your investments to grow over a long time horizon with a high-risk appetite, International Mutual Funds are a good option for you.
How to Invest in International Mutual Funds?
With so many options available in the market, you might be overwhelmed about picking the right investment for you. There are some key points to look out for before selecting a mutual fund for your investment portfolio.
1. Diversification: The mutual fund should invest in diversified securities to balance the overall risk of the fund. It should not concentrate on just one sector, because its negative performance will impact your overall investment.
2. Returns: Check out the long term returns provided by the fund. It should at least be between 10-12% to beat the inflation. You should consider investing long term in International mutual funds to get better returns even after deduction of taxes.
3. Performance: The AMC managing the mutual should be a reputed one. Also, the profile of the fund manager should be suitable for managing the fund. Along with that, the fund should provide consistent returns and overperform its peers.
How do International Mutual Funds Work?
Like any other Mutual Fund in India, International Mutual Funds are regulated by SEBI. They are managed by Indian Asset Management Companies by experienced fund managers.
Since directly investing in International markets would be a complicated task, it is advisable to invest via an International Mutual Fund managed by an Indian company.
However, the expense ratio of these funds is higher than domestic mutual funds. Apart from that, it works just like a normal fund where you purchase units of the fund and earn returns from the securities.
Features of International Mutual Funds
International Mutual Funds are unique due to the global presence of investments and exposure to industries across the world. Here are the features that set them apart:
1. Beats Inflation: Providing high returns, International Mutual Funds beat inflation.
2. Exposure to global securities: Your portfolio can be full of securities from all around the world.
3. Global Diversification: You can diversify your portfolio globally.
4. Transparency: The working of International Mutual Funds is completely transparent and you can have access to every buying and selling activity by downloading the AMCs reports.
5. Safety: Managed by experts from reputed AMCs, your investments are highly safe.
6. International mutual funds are highly liquid as you can encash your investments anytime you want.
7. High Risk: These funds are highly exposed to political and industry-related risks.
Advantages of Foreign Funds
Even though they come with a high level of risk, foreign mutual funds are very advantageous. These are some advantages of international mutual funds:
Cost-Effective: Apart from being managed by highly trained experts, such funds are also very cost-effective. When Indian markets hit a low, your overall profit can be balanced with the return from the foreign markets.
Profitable Companies: You can have access to investing in foreign corporate giants that are highly profitable and have a global market share. Even though it can be done by retail investing, mutual funds have an edge over it due to their ease of management.
Minimized Risk: It is true that international mutual funds are risky asset classes. However, they are proved to be a better option when compared to investing in retail shares of random companies.
Factors to consider before investing in Foreign Funds
Do not invest blindly in any asset class before evaluating some factors. These are some of the metrics to consider before investing in a Foreign Mutual Fund.
Risk Tolerance: Since these funds are highly risky, know your risk appetite before putting your money in these funds.
Investment Goals: Evaluate your long term and short term investment goals. Invest only if it complies with your overall financial plan.
Allocation: You should know what percentage of your overall portfolio you are allocating to these funds. Even though they are diversified, consider investing in domestic securities and the debt market as well, to balance your investments. Usually, financial advisors recommend investing 10% of your savings in International Mutual Funds.
Market Cycle: Understand the political threats of the countries in which the mutual fund is invested. If the country is prone to political volatilities, avoid investing to have a stable portfolio.
Who should invest in International Mutual Funds?
International Mutual Funds are not for every layman investor in the market. Check out the metrics to know who should invest in such mutual funds.
1. Investors with a high-risk appetite:
Such funds are highly risky and hence you should only invest if your risk appetite is substantial enough to compensate for the market volatilities. Even though you have a high-risk appetite, invest only a portion of your money in foreign funds. Do not put all your money in these funds.
2. People looking to invest in global industry leaders:
If you want to earn profits from leading companies around the world, you are the right person for investing in International Mutual Funds. By investing here, you can get benefits from the business models of top companies in the world.
3. People looking to invest long term:
If you have enough money to lock your funds for the long term. You can invest in foreign mutual funds. Do not invest to reap short term benefits, as your little amount of profit will only be scraped off in taxes and expense costs.
Taxation on International Mutual Fund
There are two kinds of taxes applicable on the profit of your Foreign Mutual Fund:
1. Short-term Capital Gains(STCG)
This tax is applicable to short-term gains for a period of fewer than three years. Short-term gains on these investments are taxed according to your income tax slab.
2. Long-term Capital Gains(LTCG)
Profit earned for more than three years is called long-term capital gains. It is taxed at the rate of 20%. However, you can have indexation benefits on the same.
This was a guide that summarized all about International mutual funds and why to invest in them. Equity markets are subject to market risks, so invest only after conducting proper research.
