What are international mutual funds?
The growth of markets and investor awareness has resulted in increased investment in the mutual fund market not just within the borders of our country but also beyond. Such international investing increases the returns potential for the Investors even though it comes at a relatively higher risk. One of the many options in international investment is investing in international mutual funds.
Mutual funds that invest in equity or debt instruments of companies outside India are known as international mutual funds. These funds were launched in India in the year 2007 after receiving permission from RBI. The risk of investing in such funds is quite high as compared to their Indian counterparts. Investing in international mutual funds increases the benefit of diversification for the investors resulting in the increased potential to earn higher returns.
Types of international mutual funds
International mutual funds can be classified into many types and can be easily accessed by investors. Some of the basic types of international mutual funds are mentioned below.
- Country Funds
Country funds are when the investor invests in funds from only one country. This makes it easier for the investor to study the international market and limit their exposure too. Ex: China Fund
- Regional Funds
When investments in mutual funds are made in companies from a particular region or geographical area, such mutual funds are known as regional funds. Investors focus on a particular geographical area of the global markets and thereby limit their exposure. Ex : Euro area, Asia Pacific, etc
- Global Funds
Global funds and international funds although similar have a basic underlying difference. Funds that invest in companies that are available across the globe including the home country of the investor are known as global funds. On the other hand, international mutual funds are funds that do not invest in the home country of the investor.
- Global Sector Funds
Global sector funds focus on a particular industry or sector in the international market. They invest in companies from that sector only in different economies. This helps in limiting the focus of international investing and provides the investors a better opportunity to have a focused analysis of the global markets. Ex: A mining fund, tech fund.
Target investors
Investment in international mutual increases the risk of investment but also provides the benefit of diversification to a global scale. This has attracted many investors over the years and has gradually resulted in increased investor awareness.
These funds, however, require the active involvement of the investors and hence may not be ideal for risk-averse investors that usually prefer passive investing options.
Investors need to have a clear idea of their investment objectives and their risk and return expectations before investing in international mutual funds. These funds are best suited to aggressive investors with a relatively higher risk appetite and better market understanding. Investors looking for hedging opportunities against rupee depreciation, having a long-term objective of building a fund for college expenses or international travel, able to manage the added risk of political, economic, or market risks can tap into the high returns potential of the international mutual funds.
Advantages of investing in international mutual funds
International mutual funds provide many interesting investment opportunities to Indian investors and have many advantages. Some advantages of investing in international mutual funds are highlighted below.
- Increased diversification
One of the basic advantages of investing in international mutual funds is the added diversification based on geographical markets. This benefit along with the creation of a portfolio of low to high-risk investments allows the investors to hedge their risk. So if markets in one country are doing better than the others, investors can still effectively stay in the green.
- Creating a cost-effective portfolio
International funds can be used to create a cost-effective portfolio to meet long-term financial goals like higher education in a foreign university, international travel, wedding, etc. The advantage of currency fluctuations can also help in building a cost-effective portfolio for investors.
- Getting international exposure through experienced fund managers
Investing in international funds is tricky and requires increased market analysis and understanding on part of the investors. This is one of the major reasons investors stay away from such funds. The expertise of professional fund managers with years of experience can help investors navigate the international markets and ultimately increase their wealth.
Disadvantages of investing in international mutual funds
There are a few inherent risks of investing in international markets. Such risks are mentioned below.
- Foreign market risk
The risk of investing in a foreign market is increased on account of political risks, economic risks, etc especially in developing economies where the policies can change overnight. This can adversely impact the earnings of the investors and defeat the purpose of investing in international mutual funds.
- Exchange risk
The exchange risk is one of the highest risks involved in international markets. The increase in the value of the rupee and vice versa can significantly impact the earnings of the investors.
- Concentration risk
Investments in international funds that are focused on a particular sector or segments may suffer from the limitations like reduced liquidity, increased risks, etc. on account of changed industry conditions or factors that impact the industry directly or indirectly.
Top recommendations from Fisdom for international mutual funds
PGIM India Global Equity Opportunities Fund
This is an international fund investing predominantly in the equity of foreign companies. The scheme aims to generate long-term capital appreciation through investments predominantly in units of overseas mutual funds, specifically focusing on agriculture. Some details of the fund are mentioned below.
| Particulars | Details |
| Fund manager | Mr. Ravi Adukia |
| Launch date | 1st Jan 2013 |
| Minimum investment | Rs. 5,000 |
| Expense ratio | 1.40% |
| Risk | Very high |
Historical Returns
| Period | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 8.90% | 37.32% | 24.02% | 12.38% |
Franklin India Feeder – Franklin U.S. Opportunities Fund
The fund aims to offer capital appreciation by investing in units of Franklin U.S. Opportunities Fund, which is an overseas Franklin Templeton mutual fund. The fund, in turn, invests in securities in the United States of America. The fund focuses on investments in small, medium and large capitalisation U.S. companies that have a strong growth potential.
| Particulars | Details |
| Fund manager | Mr. Mayank Bukrediwala |
| Launch date | 1st January 2013 |
| Minimum investment | Rs. 5,000 |
| Expense ratio | 0.56% |
| Risk | Very high |
Historical Returns
| Period | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 20.42% | 35.80% | 24.83% | 21.37% |
Other funds that you could consider
Mirae Asset NYSE FANG+ ETF Fund of Fund
The scheme aims to provide long-term capital appreciation to investors through a portfolio comprising predominantly of units of Mirae Asset NYSE FANG+ ETF.
| Particulars | Details |
| Fund manager | Ekta Gala |
| Launch date | 10th May 2021 |
| Minimum investment | Rs. 5,000 |
| Expense ratio | 0.28% |
| Risk | Very high |
The returns provided by the fund since its launch are:
| Period | Since launch |
| Returns | 32.70% |
Edelweiss Greater China Equity Off-shore Fund
This is a regular plan that invests in the equities and equity-related instruments that have registered or incorporated or are dependent on the countries in the Greater China region for their economic activities. Few details of the fund are mentioned below.
| Particulars | Details |
| Fund manager | Mr. Bhavesh Jain |
| Launch date | 01 January 2013 |
| Minimum investment | Rs. 5,000 |
| Expense ratio | 1.43% |
| Risk | Very high |
Historical Returns
| Period | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | -4.88% | 29.68% | 21.92% | 15.46% |
Kotak Global Emerging Market Fund
The scheme aims to invest a majority of assets in overseas mutual funds primarily in globally emerging markets funds. The scheme has identified T. Rowe Price SICAV, (TGEMF) a Luxembourg domiciled fund, as the primary portfolio construct.
| Particulars | Details |
| Fund manager | Arjun Khanna |
| Launch date | January 01, 2013 |
| Minimum investment | Rs. 5,000 |
| Expense ratio | 1.22% |
| Risk | High |
Historical Returns
| Period | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 2.54% | 14.52% | 13.09% | 7.50% |
Conclusion
Investing in international mutual funds has a huge growth potential for investors. It is a relatively untapped source of increasing the investor portfolio and ultimately the investor’s earnings. There are still many apprehensions related to investing in international funds which can gradually reduce through increased investor awareness and earning higher returns through calculated exposure.
FAQs
1. What is the ideal investment horizon for international mutual funds?
A. There is no fixed investment tenure for international mutual funds but such funds require the investors to stay invested for a minimum period of 5 years to earn potentially higher returns.
2. Where do international mutual funds predominantly invest in?
A. International mutual funds predominantly invest in equities and equity instruments and debt and debt instruments of companies outside India.
3. What is the risk parameter for international mutual funds?
A. International mutual funds are classified as high-risk mutual funds especially in the short term. The long-term risk can be lower in comparison.
4. Are international mutual funds a good investment opportunity for risk-averse investors?
A. International mutual funds are classified as high-risk funds that may not suit the risk expectations of risk-averse investors.
5. How are international mutual funds taxed?
A. International mutual funds are taxed in line with the debt mutual funds or fixed income funds in India. The tax structure for international mutual funds is explained in the table below.
| Type of Capital Gain | Period of holding | Tax rate |
| Short term capital gains | Less than 36 months | Taxed as per applicable slab rates of the investor |
| Long term capital gains | More than 36 months | Taxed @ 20% after the benefit of indexation |
