If you’ve ever ventured into the world of investments, you know how vital diversification of assets is. Simply put, diversification prevents you from putting all your eggs in a single basket. So, even if you drop the basket, you won’t have to spend the night on an empty stomach.
There are many ways you can diversify your portfolio. You can spread your investments across different asset classes – stocks, bonds, or fixed instruments. Or you can stick with one class, like mutual funds, and park your money across its various subcategories – index funds, debt funds, equity funds, etc.
However, the COVID-19 pandemic has highlighted how global markets behave differently at any point in time. This has opened the doors to a new diversification method – skipping the time zones. Yes, you can now achieve unparalleled diversification with international mutual funds.
But tapping into foreign markets is always a bit tricky. So, here are some steps you can follow before investing.
Research is a necessary first step in investing, especially in the case of international funds. Since you’re unaware of how markets in a particular country behave, you need to spend some time understanding it first – the prevailing trends, the dynamics, and the overall psychology of the market.
With a careful study, you will know which equities and funds will perform well in the future and can park your funds accordingly.
Additional Read – Why it is Required to Diversify Your MF Portfolio
Once you have a fix on a well-performing foreign mutual fund in India, the next step is to invest. Fortunately, investing in international funds is no different from domestic funds. You can do so by directly investing through an asset management company (AMC), an investment advisor, or via easily accessible online investment platforms.
The best part? There’s no compulsion to make a lump sum payment. You can invest in a foreign fund via SIP (systematic investment plan) at time intervals that best suit you – fortnightly, monthly, or quarterly. Lastly, if you’re a beginner, you can start with SIPs as low as Rs. 500.
International funds are taxed in the same way debt funds are. So, if you hold your funds for more than three years, your returns will be categorised as long-term and will be taxed at the rate of 20% post-indexation. Indexation factors in the inflation rate during the holding period and adjusts the acquisition cost accordingly.
On the other hand, for funds held for less than three years, the returns are classified as short-term and are taxed according to the slab they fall under.
Additional Read – Investing in International Funds for Portfolio Diversification
Over to you
If you are playing the long-term investment game, international funds are the no.1 way to diversify your portfolio and mitigate market risks. Moreover, it’s way less risky than investing in foreign stocks, as these are managed by experts. Lastly, you also get to invest in your favourite brands, such as Apple, Amazon, and Google, a privilege that you don’t have in India.
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