Stock market sceptics will tell you to stay inside your country border. But if you’re looking at the bigger picture, international portfolio investmentsmake absolute sense.
International funds are simply equity funds, but with money parked in stocks of companies listed outside of India. You invest in rupees and receive a unit of the fund in return.
But how exactly are international funds beneficial? Let’s explore.
Reasons why you should invest in international mutual funds
#1 Reduced portfolio risk
At any given time, the stock indices of one country are different from the other, and no two global markets go down together. So even if your primary market underperforms, your overall portfolio gains will remain unaffected. This eliminates the single country risk for good.
Yes, some unprecedented crises like the COVID-19 pandemic may leave a negative impact on the global economy. Even then, not every country will experience the same pains.
Thus, having a basket of domestic and international funds can mitigate the overall portfolio risk by a profitable margin.
Additional Read – International Mutual Funds
#2 Earn from currency fluctuations
All foreign investments are directly influenced by fluctuations in currency values. Naturally, the fluctuations impact your gains as well.
For explanation’s sake, suppose you invest $1000 in a US-based fund when
$1 = Rs. 50. That means you invested Rs. 50,000 in total. Now, what if the exchange rate rises to Rs. 60? Your investment value will reach Rs. 60,000.
To put it simply, you will pocket a profit of Rs. 10,000 from currency fluctuations alone.
However, at the same time, the reverse is also true. When the value of the rupee goes up, your gains will come down automatically. This is why a combination of domestic and international funds is ideal.
Since such a portfolio tones down the average risk, you can earn significant gains even if your primary market underperforms.
Additional Read – Why is international investment important for Indian investors?
#3 Capitalise on global trends
The Indian stock market is still influenced by traditional sectors like FMCG, banking, Oil & Gas, Pharma, etc. However, compared to the international markets, the pace of positive changes is quite slow.
Investing in international equities can help you take advantage of the booming global sectors. You can also invest in big IT companies like Apple and Facebook. Or enter thriving markets and sectors unavailable in India.
But that’s not all. International fund investments also carry the following advantages –
- Regulated by Securities Exchange Board of India (SEBI)
- Diversification across currencies, geographies, and industries
- Professional fund management
Now, that’s real gold to be had, provided you stay invested for at least a term of 3-5 years.
With that said, international funds are not entirely risk-free. So, best to consider your risk handling capacity and run a thorough international portfolio analysisbefore starting international mutual fund investing.
The bottom line
So you see, international investing is one of the best ways to make good profits, provided you select the funds carefully.
If you’re keen on starting your international investment journey, let Tata Capital’s Moneyfy app guide your way. Download today!