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International Funds or Overseas Mutual Fund schemes, simply mutual funds that invest in foreign companies or stocks. Like for example, in the case of India, it would be funds that invest in the equities of companies that are outside India.
In recent days these funds have become more popular among investors. If we talk about their numbers, then as of July 2021, there are nearly 50 international funds being managed in India, for investors to choose from.
The main motive of investors, behind investing in Foreign Funds is, to give a good diversification to their portfolio. A diverse portfolio not only splits the risks but also taps earning potential of different markets.
However, before you tempt to add international funds to your portfolio, it is my core duty to suggest you consider the factors listed below.
Considering these factors before taking the plunge will help you allocate the right amount in the right international fund, concerning your portfolio and your goals.
So, let us know about these basics!
International Funds Do Contain Risk…………
Like other mutual fund schemes, international fund schemes also are associated with a kind of risk. There is no doubt in the past 5-10 years, they performed so well, even some of these funds gave a five-year annualized return of more than 20%. However, some funds from the same category saw returns falling to one digit.
Thus, here is what is important, research the risks associated with the international funds before you invest. Remember, choosing and monitoring your international fund is important.
When you invest in international funds, you are investing in a different geography, that is unfamiliar to you. You may find it difficult to measure the risk in the long term, not to worry, just ask an expert, a financial advisor.
Currency Value Differs And They Impact…………
You may not be familiar with the process of investment and redemption in international funds. So basically, what happens:
- When you invest in the international fund you buy units of an underlying fund registered in a foreign capital market.
- You invest in Indian rupees, which are further converted into the overseas currency that the underlying fund is issued in.
- When you redeem your units, they are sold in overseas currency.
- The amount is converted back to rupees and paid out.
In all the above processes where does the currency difference impact? So, when you redeem, if the Indian rupee has depreciated against the currency of the underlying fund, you will gain from the currency transaction.
Choose Diversified Over Thematic………
The choice in international mutual funds is vast. It’s easy to lose track, get confused, make the wrong choice, or pile on too many different schemes.
A good rule of thumb is to avoid very specific themes in this space. The risk of those themes underperforming, in the long run, can be high.
How Does International Fund Benefits?
The prominent benefit is portfolio diversification, especially at a time when the domestic market is struggling, you can assure benefits from a flourishing foreign market. However here it is difficult to predict which international fund will so diverging performance.
Thus, experts advise when you very little about the economy and the type of companies you will get exposure to through your international funds, then limit your exposure. It’s completely okay if you want to grab the benefit from economic productivity across the globe, but when it is limited you don’t face the harsh risks too.
Keep reading our article and stay updated with the latest news about Mutual Funds!
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).