Mutual funds are a good investment option for young investors with a long term investment horizon. The longer you can remain invested, the higher risks you can take and, in the process, earn higher returns. Mutual funds are not a good option for investors with a short investment horizon. That’s because these are market linked schemes and a majority of them like equity funds need time to perform since they predominantly invest in equity and equity related instruments. However, if you have always wanted to explore investment opportunities outside India you can now do so with international mutual funds.
What are international mutual funds?
As the name suggests, international mutual funds are those funds that predominantly invest in equity and debt related instruments of companies that are publicly listed outside India. Some also refer to them as international funds and foreign funds. However, investors must not confuse international funds with global funds. That’s because global funds include markets from where the fund originates whereas international funds may invest across the foreign markets but exclude markets from their country of origin.
Types of international funds
Country specific international funds invest in equity and equity related instruments of companies belonging to a specific country. For example, if you invest in a fund that only invests in the USA, its portfolio may consist of companies like Microsoft, Apple, Tesla, Facebook, etc.
Region specific funds may consider equity markets of only a specific region like South America, Eastern Europe, South East Asia, etc.
Sector specific funds only invest in equity and equity related instruments of international companies belonging to a specific sector or industry.
Fund of Funds is domestic feeder funds that pool funds from investors and buy units of an international fund that is managed offshore. Here the fund manager doesn’t actively manage the fund’s portfolio but instead tries to benefit from the expertise of the AMC already managing a foreign fund.
What are the dos and don’ts of international funds?
If investing in international funds is on your mind, then you should first determine if they comply with your investment objective. If you are new to investing you can consult a financial advisor to help you make an informed investment decision. Depending on how much international exposure you want your portfolio to encompass, you can invest in international funds accordingly. While investing in international funds investors need to have a fair understanding of how the foreign markets in which they’re investing function. Also, investors must stay updated with the political and socio economic conditions of the country in which they invest as this can also impact the performance of the fund.
Investors who seek international diversification can consider investing in international funds. However, they must invest as per their risk appetite. International funds do not guarantee returns and carry a very high risk profile. They can get affected I rupee appreciates against the currency value of the country in which they invest.
How to invest in international funds?
Investors can either make a lumpsum investment or can start a monthly SIP in international funds. Systematic Investment Plan allows investors to save and invest a fixed sum regularly. Investors can decide on the monthly SIP sum and then invest every month till their investment objective is accomplished. Now investors can even calculate their future SIP returns using the SIP calculator, a free online tool easily accessible to every.
It might a good idea to invest in international funds, but investors should not invest all their money in one single investment and should always aim at diversification.