Liberalization and globalization have made it possible for people across the globe to connect with the economies of other countries and tap into international market movements. One of the effects of this increasing connectivity is that Indian investors can now park their money in investments abroad. If you’re an investor residing in India, you can purchase investments from foreign financial markets to add some diversity to your portfolio. International mutual funds are among the most popular kinds of foreign investments chosen for the purpose of portfolio diversification.

What are international funds?

International mutual funds are funds that invest the pool of money in foreign companies. These funds are also referred to as overseas funds or foreign funds, and they make for good long-term investment options. The top mutual funds that invest in foreign companies help you to diversify your investments into the best global companies and sectors that are not available in your home country. These funds have the potential to generate good returns over long term horizons.

Some foreign funds invest directly in international stocks, while others invest in international indices like NASDAQ or S&P 500. Another kind of foreign fund acts as a feeder that invests in specific mutual funds in the international financial markets.

Why invest in international funds

Why invest in international funds?

One of the primary reasons to consider investing in international funds is the diversification of investments along with decent returns. As of April 2019, the top mutual funds investing in international financial assets yielded 1-year returns exceeding 20%. By contrast, index funds and exchange-traded funds linked with the Sensex gave returns below 15% for the same period.

Aside from the apparent financial rewards of investing in international mutual funds, there’s also another reason to consider including these investment options in your financial plan. Investing in the top mutual funds connected with overseas companies, helps achieve a higher level of portfolio diversification. This can be particularly useful if you have an investment portfolio that’s quite limited. It can also be an advantage if your portfolio has an assortment of investments, because buying mutual funds that invest in foreign companies can help you diversify your set of investments further.

How can the top mutual funds investing in foreign companies help with diversification?

International funds bring two kinds of diversification to your investments. Let’s get a better look at both these advantages.

Portfolio diversification

A balanced portfolio must typically include assets with varying levels of risk-reward combinations. You need to invest in low-risk, medium-risk, and high-risk securities to spread your overall risk exposure sufficiently. By purchasing the top mutual funds that invest in the international financial market, you can add a new layer of risk exposure and compensation to your existing portfolio.

Geographical diversification

Investing in the financial markets of different countries helps you take advantage of the cyclical nature of the global economic system. As a result of investing in assets from multiple countries, you can balance out the risk associated with certain points in the economic cycle of your home country. For instance, if the economy in India is at a low, you can set off the potential losses with gains from a foreign market.

What are the different types of international funds?

There are different types of international funds that you can choose from. Understanding these different varieties can help you make an informed decision about the kind of funds to include in your portfolio.

Regional funds

These are mutual funds that invest in the financial assets of companies located in a specific geographic region. The economic, political, and social climate in that region influences the movement of the fund’s value.

Country funds

Country funds are mutual funds that invest solely in the assets of one particular country. The greatest advantage of these funds is that it becomes easier for you to study the scenario in that country before investing in the relevant funds.

Global funds

Although they sound like international funds, global funds are a tad bit different. They’re effectively funds that deal with financial assets from all over the world, including your home country.

Global sector funds

These mutual funds choose to focus on any one sector of the economy, and then use the money pooled in to invest in financial assets pertaining to that sector on a global scale. You can use global sector funds to leverage the potential profits in a particular industry.

Conclusion

The important thing to remember before investing in international funds for portfolio diversification is that while the basic tenets are the same as they are for investing in mutual funds, you need to perform a bit of additional research before investing in foreign funds. If it’s your first time investing in international funds, it’s prudent to seek the help of a professional wealth manager.

Additional Reads:- Out of Investment Options? A Wealth Manager to the Rescue!

Tata Capital offers an exclusive wealth management portal for investors like you. Using the services available thereon, you can choose the top mutual funds that invest internationally and make the most of global market movements. Tata Capital’s wealth management services also help you grow your investments and access expert advice on matters related to mutual funds.

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