Today, investing isn’t restricted to Indian stocks or mutual funds. Today, investors are also interested in finding ways to invest in global markets. International mutual funds permit Indian investors to invest in companies across the globe without having to open a foreign trading account. These monies have the potential to create wealth and ensure them a share in the success of global companies like Apple, Google, Amazon, Tesla and other firms.
In this blog, we are going to see what an international mutual fund is and how it works, its advantages, risks and things you need to know before putting your money into it.
What are International Mutual Funds?
International mutual funds are those schemes made available by Indian asset management companies (AMCs) that invest in overseas markets. The fund pools the money of investors to invest in shares of companies listed outside India.
For instance, a fund that’s U.S.-focused but not based in the United States might hold shares of big American companies such as Microsoft, Netflix or Coca-Cola. Some funds are concentrated in a single country, such as the United States or Japan, while others disperse assets across multiple countries.
The funds offer Indian investors exposure to global markets while investing in rupees. The AMC handles all the transactions, so investors do not have to think about foreign trading rules.
How International Mutual Funds Work?
1. Fund Structure – The funds directly acquire foreign stocks or invest in an existing global fund (known as a “feeder” fund).
2. Invest in Rupees – You invest in rupees and the AMC arranges a forex deal.
3. Returns – There are 2 factors on the basis of which you get returns:
Performance of foreign stocks
Currency exchange rate (Rs./foreign currency)
4. NAV – The NAV is the value of all the fund’s assets, minus any of its liabilities, which fluctuates with global market movements.
Benefits of International Mutual Funds
1. Global Diversification
It can also be risky to invest only in Indian markets. Investing in international funds spreads your money across various economies. When Indian markets are in the slumps, global equity could help balance out your portfolio.
2. Access to Global Giants
The world’s biggest companies – the Facebooks, Amazons and Googles of the world – do not have listings in India. International funds offer you an opportunity to invest in them with ease.
3. Currency Advantage
Returns might be higher if the Indian rupee depreciates against the US dollar. If, for instance, your US stocks do 10% and the dollar appreciates relative to the rupee, your total return can be much higher.
4. Growth Opportunities
Some of these industries grow faster abroad. This could include the tech companies in the US or even electric vehicle manufacturers in China. International funds can help you tap into these trends.
Risks of International Mutual Funds
1. Currency Risk
Your returns can also come down if the rupee appreciates against foreign currencies. For instance, if the US dollar loses value, your returns might be less.
2. Market Risk
And just as Indian shares lose and gain value, so do foreign markets. Your returns can be affected by global crises, wars or economic stumbles.
3. High Expense Ratio
As the money is raised and managed offshore, therefore the expense ratio is also higher compared to Indian equity funds.
4. Taxation
International mutual funds gains treated like debt funds in india taxed. Gains in the short term (under 3 years) are taxed as per your income slab and long-term gains (after 3 years) are taxed at 20% with indexation.
Who Should Opt for International Mutual Funds?
- Investors looking for global exposure.
- People who are already investing in Indian mutual funds and looking at diversifying.
- Investors with a long-term horizon, at least 5 years.
- Those who appreciate the risks of currency moves.
If you’re new to the whole game, it can be a good idea to dip your toe in (maybe 5–10% of your portfolio) and go from there.
Things to Check Before Investing
1. Fund Objective – See if the objective of the fund is one country, for example US or whether it has exposure across regions.
2. Previous Performance – Watch how the fund has performed for the 3 to 5 years.
3. Expense Ratio – Research similar funds and see information on expense ratios.
4. Currency Exposure – Know how changes in exchange rates impact performance.
5. Investment Horizon – You must be prepared to hold on to the investments for long.
Most Common Types of International Mutual Funds
- US-centric Funds – Primarily invest in U.S. corporations.
- Country Funds – invest in a particalur country e.g. Japan or China.
- Region Dedicate a portion to investing in a region, e.g. Europe or Asia-Pacific etcetera.
- International Funds – Invest in several countries.
- Theme Funds– One that focuses on a particular theme; technology, healthcare or clean energy etc.
Example of How Returns Work
Let’s say you invest ₹1 lakh in a US-focused international mutual fund product. If you invest in US stocks and receive a 12% return, if the dollar also appreciates by roughly 3%, your effective return could be around 15%. But if the dollar’s value is falling, your return could be less.
Tips for Investors
- Avoid having only international funds. Include them in your portfolio.
- Invest via SIPs to minimize the risk of market volatility.
- Follow global news because they can be your investment’s both friend or foe.
- Review your fund’s performance regularly.
FAQs:
Q1. How can I invest in foreign mutual funds while being in India?
Yes Indian Investors can invest in international mutual funds through the Indian AMCs seamlessly.
Q2. How much is the minimum investment?
You can also begin an investment in some funds through SIP with as little as ₹500 or ₹1,000.
Q3. Are international mutual funds safe?
They come with their own risks, like currency shifts and global market instability. But long-term investment can spread risks.
Q4. How much of my portfolio should be invested in them?
The pros say you should have 5–15% of your portfolio in international mutual funds.
Q5. How are these funds taxed?
They are taxed similar to debt funds in India. Short-term gains are taxed as per your slab of income, and long-term gains (after 3 years) at 20% with indexation.
Q6. What is better: global fund or US-focused fund?
It depends on your goal. If broad diversification is your goal, opt for global funds. If you want to invest in American companies, stick with US-focused funds.
Conclusion
International mutual funds are a wise way for Indian investors to not only diversify beyond domestic markets. They allow you to invest in global megatrends, capitalize on currency movement and build wealth through international trends. But they also carry risks, such as currency moves and extra costs.
The secret is to invest wisely, get in small and remain invested for the long term. In this way you can also compose your portfolio, hedging it and gaining access to global economies.
