Table Of Contents
What Is An International Fund?
An international fund is an equity-oriented mutual fund that invests in companies all over the world. And the countries are based on the type of fund you choose.
With this fund, you can get exposure across other countries like US and UK.
That said, you must wonder, why should I invest in International Mutual Funds? Conveying its features might clear your doubt.
Types Of International Funds:
The following are a few types of international funds available.
When a mutual fund is invested in assets that belong to a specific geographic region, it is known as a regional fund. Values of regional funds change based on the social, economic, and political climate in that region.
Mutual funds invested on assets belonging to a specific country are known as country funds. If you knew the country before investing, it would be easy to research and understand. It is a plus in Country funds.
This type of fund invests in assets all over the globe, even your home country.
Global Sector Funds:
These Global Sector Funds may sound similar to the last one. But this mutual fund chooses to invest in a particular economic sector. Then the money is combined and invested on assets that belong to a global sector. Global sector funds can then yield profit in a specific industry.
When an investment is made based on a specific theme, it is known as thematic funds. If our investment theme is based on IT companies, the funds go only to those investments and not to any other fields. Examples of thematic funds include energy, consumption, etc.
What else do we need to know about International Funds? The following passage comes with the answer.
Features Of International Funds:
i.) Investing Among Global Leaders:
Due to international exposure, your portfolio will be exposed internationally. And so, it will be stable. International exposure may include tech giants like Amazon and Apple. International funds Investments with these large-cap companies will give you good chances of getting stable returns.
ii.) International Exposure:
Depending on the type of mutual fund you choose, you can enjoy exposure to certain countries. Not only to developed countries but also chances to get into lucrative and unexplored markets like China, Taiwan, and South Korea.
All markets are not aligned to each other but depend on the corresponding country’s economy. While investing in the international fund, if there is a drop in one country, the international exposure will keep your portfolio safe.
Example: If India faces an economic depletion, stocks here may fallout. But this could be an up-rise in other countries like UK or US. Due to exposure to the securities in these countries, your portfolio remains stable.
iv.) INR Depreciation Benefit:
Indian stock markets linked with INR (Indian Rupee). So, if INR depreciates, then the value of Indian stocks will go down too. When there is depreciation in INR, the foreign exchange currency conversion factor goes in your favor on your international fund. It will increase the returns on your international funds.
v.) Growing World Economy:
Due to the help of developed and developing markets, the world’s economy is growing exponentially. Investing in international funds is a good way to grow along with the growing world.
With all the features above and a diversified portfolio, an international fund reduces risk and gives you a chance for creating long-term wealth.
International funds have two types of diversification available. What are they?
A balanced portfolio must have a combination of higher and lower-risk assets. So, you must’ve invested in small, medium, and large-cap companies with different risk levels. To tone your portfolio, investment in international funds is a better way. It creates a new risk layer and tones your portfolio.
Investing in an international fund helps us take advantage of the cyclic nature of the global market. So, if one country is down on the economy, the investments in other countries will make this risk even.
Things To Notice Before Investing In International Funds:
Many international funds have performed well in the past years. Not all of them, so it is better to study the track record and operation history of a minimum of 7 years. That will give a clear picture of the fund. If you can’t find answers still, it is better to consult a financial planner.
If you invest in international markets, the currency exchange rate among your country and the country you invest in impacts your profits. For instance, while you are investing in the US stock market, then INR will be converted to US dollars. When calculating NAV, the US dollar is converted back to INR. If INR depreciates, the corresponding appreciation in the US dollar will be included with your returns.
Aim For Long-term Investment:
Long-term investments have got the higher potential to provide better capital appreciations. And long term means around a decade (10 years). So it is better to avoid short-term investments in international mutual funds.
Checking the diversification:
International funds invest in different sectors like agriculture, aviation, and automobile. The more the diversification, the lesser the risk. Some funds are not much diversified as they claim to be. So, find whether a fund is diversified before investing.
Additional risks In International Funds:
Since we are investing across countries, geopolitical risk is unavoidable. Any changes that occur in the country that you have invested in, will directly affect your portfolio performance.
International funds in a few developing countries might give you better and lucrative returns. It also diversifies your portfolio. But, unlike developed countries, these country currencies might get depreciated. Which in turn affects your returns.
Investments in developed markets may be more stable and give us better returns. But on thecomparehand, compara,tively there is less potential for growth while investing in developed markets. Where in, investments in developing countries give more growth along with higher volatility.
- Being an Indian investor, you may have assumptions to fully invest in developed countries given that they are more stable. Instead, start your investments with diversified Indian equity funds. Then you can allot 5% of your investments to international mutual funds. That should give you enough diversification.
- Better avoid thematic international funds as they focus on particular sectors. This will increase the risk quotient of your portfolio.
It is better to invest in International funds if you want diversification for your portfolio. After taking in everything above, still not convinced about diversifying with international funds? Then you may try consulting a financial planner.
If you are serious about getting your investments planned, check out our free complimentary consultation