International funds are those mutual funds that invest in foreign stocks. These funds are also referred to as foreign or overseas funds. Investing in these stocks can expose investors to high risk but also offers a chance of higher returns & diversification benefits. Investors usually prefer it as a long-term investment alternative. Nowadays, investors are getting more knowledgeable and aware of investment options available around the globe and how they can diversify their portfolios with the inclusion of these funds. They add an element of diversification in the geographical aspects. In this article, we are going to get a deeper understanding of international funds.
WHO SHOULD INVEST IN INTERNATIONAL FUNDS?
Keen and smart investors have always been interested in international funds for some good reasons. The first is diversification as we know. The second one is the economic cycle varies from country to country and parallel investment in different economies endure minimal loss and possibly smoother gains. The third is exposure to the international stock exchange can broaden investors’ expertise and experience. In easy words, international mutual funds invest in the global markets. Nevertheless, they are not a good choice for passive investors as they need careful and continual market study.
Investors should be very sure of their financial and investment goals, both long and short term. Check track record, consult a financial advisor and then make a sound and ideal decision that suits the requirements.
ADVANTAGES OF INTERNATIONAL FUNDS
1. Geographical diversification:
Returns of investors who invest in Indian stocks are affected by the overall performance of the Indian markets. By adding these funds to the portfolio, investors will increase the geographic diversification of their investments which gives an opportunity to earn from the positive market movements of another country.
2. Cost-effective portfolio:
Investors can utilize this exposure to foreign funds to meet major financial goals. When it comes to delivering value, Indian equities are not cheap. So, a wisely-picked international mutual fund can balance this out.
3. International expert management:
Investors may not have adequate knowledge or skills about the foreign countries’ economy and the industry. Here, a qualified mediator can be of great assistance. Therefore, investors can gain exposure to the international markets even if they are not familiar with them.
4. Overall diversification:
An investment portfolio is a mix of low, medium, and high-risk investments. Therefore, when there is a market low in the own country, the investments abroad can compensate for the same.
RISKS ASSOCIATED WITH INTERNATIONAL FUNDS
1. Foreign market risk:
International mutual funds expose their investors to political, economic, and market risks of foreign countries. The risk is high in the case of investing in frontier or emerging markets lacking in regulation framework, liquidity, and market efficiency.
2. Concentration risk:
International mutual funds with concentrated investment portfolios may suffer from low liquidity, higher risk, and higher fluctuations in their NAV.
3. Exchange rate risk:
Fluctuations in exchange rates, especially appreciation in the rupee value can adversely impact the returns of international funds.
FACTORS TO CONSIDER BEFORE INVESTING
1. Tax implications:
International funds majorly invest in equity and equity-related instruments of international entities. Since they do not primarily invest in domestic equities, they are not classified into equity funds. Hence for tax calculations, these funds are taken as debt funds and hence the provisions of LTCG and STCG for debt funds apply to these funds.
2. Macro economical factors:
The political situation of a country or its social or economic aspects can have a huge impact on the performance of the fund. Hence, investors must understand these factors and keep a close watch on the market.
As discussed, investing in international funds exposes you to multiple risks which should be watched and understood before investing in them.
BEST INTERNATIONAL FUNDS TO INVEST IN
- ICICI Prudential US Bluechip Equity Fund
- Edelweiss US Technology FoF
- Motilal Oswal Nasdaq 100 FoF
- Motilal Oswal S&P 500 Index Fund
- Nippon India US equity Opportunities Fund
- Edelweiss Greater China Equities Off-shore Fund
- DSP Global Allocation Fund
- Aditya Birla SL Intenration Equity Fund
- DSP US Flexible Equity Fund
- Kotak Global Emerging Market Fund
Frequently Asked Questions (FAQs)
1. What are international funds?
International funds are those mutual funds that invest in foreign stocks. These funds are also referred to as foreign or overseas funds.
2. What are the advantages of investing in international funds?
It helps in creating a cost-effective portfolio and provides geographical diversification.
3. What are the risks associated with international funds?
The risk associated with international funds is foreign market risk, exchange rate risk, and concentration risk.
4. What are the best international funds to invest in?
Some of the best international funds are ICICI Prudential US Bluechip Equity Fund, Motilal Oswal Nasdaq 100 FoF, & Motilal Oswal S&P 500 Index Fund.