Should you invest in international mutual funds?
International mutual funds primarily invest in companies listed in markets other than the investor’s country of origin. They are sometimes referred to as foreign funds or overseas funds. Investors looking to invest in mutual funds beyond domestic markets usually prefer such funds. Individuals invest in international mutual funds in India to diversify their portfolio and take advantage of rallying indexes on major bourses across the globe as well as gain from currency fluctuations. This nullifies the impact of isolated stock market volatility on the overall investment. However, as with all mutual fund investments, the risk associated is high but so are the returns.
Advantages of Investing in Foreign Mutual Funds in India
Global trade and commerce operate in tandem; however, the markets in different economies do not always move in sync with each other.An international mutual fund provides you with the opportunity to invest in an economy that is doing well at a particular point. Following are some of the advantages ofinvesting in foreign mutual funds:
- Diversification of Investment
These funds help diversify the investor’s portfolio. It also provides them with access to markets that would otherwise be difficult to access and reduces their exposure to Indian markets. You can benefit from the highs and lows experienced in a particular market in a given time frame to add to your gains.
- Balances Economic Volatility
Individuals invest in international mutual funds in India to ensure healthy returns by overcoming the economic cycles of diverse markets. This sets offany losses accrued from volatility observed in a particular economy by benefitting from better-performing markets.
- Hedging of Investment
Investing in foreign mutual funds acts as a hedge for local investments when the rupee falls against the dollar, thus diminishing losses accrued from currency depreciation. On the other hand, if the rupee falls against the foreign currency, you will receive more rupees per unit of that currency. The makes the risk equal to the reward with these funds.
- Access to International Blue-Chip Companies
Some corporate giants like Coca-Cola, Google, Royal Dutch Shell, or Microsoft are not listed on Indian stock exchanges. With international mutual funds, you can bridge this gap and invest in them.
Gaining insighteven into a single economy takes a fair amount of time. You might not be endowed with knowledge of foreign companies and theeconomies they operate in.In such instances, a professional intermediary can be of great help. An international mutual fundmanaged by an expert team can give you beneficial exposure to the global markets.
These are some of the benefits of mutual funds investing in foreign financial instruments.
Risks Related To Investing In Foreign Mutual Funds:
As with all other investments, international mutual fund investments come with their own set of risks. Here are some of the perils of investing in foreign mutual funds in India:
- Currency Fluctuations
One of the major risks of investing in international markets is exposure to currency fluctuations. If the foreign currency in which yourfunds have been invested fall against the rupee, then it will take a toll on your returns. It could even reverse the gains you had made in the international market.
- Political and Economic Factors
Mutual fund investments are subject to market risks and volatility and, hence, their performance is directly linked to the economies they operate in. International mutual funds might suffer from economic and political turmoil occurring in individual regions.
You might consider investing in foreign markets if you are a pro-investor and have a good understanding of domestic and global markets. You could invest around 5-10% of your total mutual fund portfolio in such foreign mutual funds with a long-term horizon to truly benefit from them.
You can easily invest in international mutual funds online as it is a short and hassle-free affair. Happy Investing!