International Mutual Funds
In the current globalized economy, it's becoming increasingly important for investors to diversify their portfolios by investing in international markets. International mutual funds provide a convenient and effective way to invest in companies worldwide, offering exposure to a broad range of global economies, industries, and currencies.
If you're an Indian investor looking to invest in international markets, you have many options. This blog will explore international mutual funds, their benefits, and the best international mutual funds available in India.
What are International Mutual Funds?
International mutual funds, also known as global or foreign funds, are mutual funds that invest in companies based outside of India. These funds invest in companies from different countries across the globe, allowing investors to gain exposure to international markets. International mutual funds may invest in developed markets such as the United States, the United Kingdom, and Japan and emerging markets such as China, Brazil, and India.
It's important to note that international funds are subject to various risks. For instance, currency fluctuations can add volatility to returns, and economic and political conditions in foreign countries may harm the performance of international mutual funds. Additionally, international mutual funds may have higher expenses than domestic funds due to the costs of researching and investing in foreign companies.
Benefits of Investing in International Mutual Funds
Investing in international mutual funds can provide a variety of benefits, including:
- Diversification: International funds help diversify the investor's portfolio by providing exposure to different industries and countries. By investing in various companies across other regions, investors can reduce their risk as their investments are not tied to the performance of a single market. Diversification helps balance the risks of investments and may lead to better returns over the long term.
- Potential for Higher Returns: International markets offer higher growth potential than the domestic market, which can lead to higher returns for investors.
- Currency Diversification: International mutual funds may invest in currencies other than the Indian rupee, providing currency diversification benefits for investors. These funds offer investors exposure to currencies other than the Indian Rupee. This exposure can help investors benefit from fluctuations in foreign currency exchange rates. However, it's important to note that currency fluctuations can also add volatility to the returns of international mutual funds.
- Access to Global Brands: Investing in international mutual funds allows you to invest in globally recognized companies that may not be available on the Indian stock exchange. For instance, international mutual funds may allow Indian investors to invest in technology companies such as Apple or Amazon, which are not listed in the Indian stock market. Moreover, international funds offer a chance to invest in emerging markets, which may have higher growth potential than developed ones
Types of International Mutual Funds
There are several types of international mutual funds available in India, including:
- Regional Funds: These funds invest in a specific region, such as Europe, Asia, or Latin America.
- Country-Specific Funds: These funds invest in a single country, such as the United States or China.
- Global Funds: These funds invest in companies worldwide, including developed and emerging markets.
- Sector-Specific Funds: These funds invest globally in a specific sector, such as technology or healthcare.
Best International Mutual Funds in India
Here are some of the best international mutual funds in India:
- Franklin India Feeder - Franklin US Opportunities Fund: This fund invests in companies listed on the US stock exchange and has delivered strong returns over the years.
- ICICI Prudential US Bluechip Equity Fund: This fund invests in large-cap US companies and has a strong track record of performance.
- Mirae Asset Emerging Bluechip Fund: This fund invests in emerging market companies across Asia and consistently delivers high returns.
- Principal Global Opportunities Fund: This fund invests in global companies across various sectors and has a strong track record of performance.
- Kotak World Gold Fund: This fund invests in global gold mining companies and provides exposure to the gold sector, which can be a good hedge against inflation and market volatility.
How to Invest in International Mutual Funds in India
Investing in international funds in India is relatively easy. You can invest these funds through a mutual fund distributor or online investment platforms. Before investing, it's essential to research and understands the fund's investment objective, strategy, and fees.
It's also necessary to remember that investing in international mutual funds comes with risks, including currency fluctuations and political instability. So, as with any investment, diversify your portfolio and support based on your risk tolerance and investment goals.
Factors to Consider When Choosing International Mutual Funds
When choosing an international mutual fund to invest in, there are several factors to consider, including:
Investment Objective: Consider whether the fund's objective aligns with your goals. For example, if you're looking for long-term growth, a global fund may be a good choice, while if you're looking for income, a country-specific fund that invests in high-yield bonds may be more suitable.
Risk Profile: Consider the fund's risk profile and whether it aligns with your risk tolerance. For example, a sector-specific fund may be more volatile than a regional fund that invests in various industries.
Performance: Consider the fund's historical performance and track record. Look for funds that have consistently delivered strong returns over the long term.
Fees: Consider the fees associated with the fund, including expense ratios, management fees, and transaction costs. Look for low-fee funds, as higher prices can affect your returns.
Risks of Investing in International Mutual Funds
While investing in international mutual funds can provide several benefits, it's important to remember that risks are also involved. Some of the risks associated with investing in international mutual funds include the following:
Currency Risk: International mutual funds invest in companies based in foreign countries, which means that currency fluctuations may impact their returns. This can result in gains or losses depending on the exchange rate at the time of investment and the time of sale.
Country-Specific Risks: Investing in a single country or region can expose investors to political instability, regulatory changes, and economic downturns. For example, if a fund invests heavily in a country experiencing political unrest or a financial crisis, it can result in significant losses for investors.
Liquidity Risk: Some international markets may not be as liquid as the domestic market, meaning selling assets quickly or at a fair price can be harder. This can result in lower returns or difficulty in exiting an investment.
Legal and Regulatory Risk: International markets may have different legal and regulatory frameworks, which can increase the risk of fraud or other financial misconduct. Researching the legal and regulatory environment of the countries where the fund invests is essential.
It's essential to understand the risks associated with investing in international mutual funds and ensure that you are comfortable with the level of risk before investing. It's also important to diversify your portfolio and not rely solely on international mutual funds for your investments.
Conclusion
International mutual funds provide Indian investors with a convenient and effective way to invest in companies worldwide and diversify their portfolios. By investing in international markets, investors can achieve higher returns and reduce risk through exposure to a broad range of global economies, industries, and currencies.
When choosing international mutual funds, it's essential to consider the fund's investment objective, risk profile, performance, fees, and the risks associated with investing in global markets. However, with the proper research and investment strategy, international mutual funds can be valuable to any investor's portfolio.