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In the past 16 years since global mutual funds debuted in India, they have steadily grown to allow investors to think beyond the Indian market. With global mutual funds, investors are exposed to global leaders like Facebook and Google and their high growth potential. Not to mention, they get the opportunity to diversify their portfolio across different economies and currencies for better returns and mitigated risk.
However, understanding and investing in the international market can be tricky. So the question is, should you invest in diversified global funds? In a word, yes. And here's why.
Global mutual funds are equity-linked securities investing in companies across the globe, including the domestic market. Investing in global funds works the same as investing in any other domestic mutual fund – you invest in rupees and are allocated units of the fund scheme.
Global funds are an excellent option for investors looking to tap into the growth potential of global market leaders. Moreover, it brings you both portfolio diversification and geographical diversification. This is why experienced investors with a good understanding of the foreign market and its risks stand to gain a lot by investing in global diversified funds.
1. Portfolio diversification
What makes global funds a must-have investment is their ability to diversify. Every investor knows that a diversified investment portfolio not only helps mitigate the risk but opens the door to different markets, sectors, and risk classes for better returns.
With global funds, different fund schemes have a different approach to global investing, exposing you to various categories of international mutual funds based on geographical location, investment theme, or investment route.
Besides, global funds also offer you access to investment instruments not present in India. Thus, further helping you diversify your investments.
2. Global diversification
Global funds expose you to investment opportunities in various growing and developed economies across the globe. Depending upon your financial goals and risk appetite, there are plenty of mutual fund schemes that offer exposure to profitable markets other than the US, including the UK, China, South Korea, the Middle East, and many more.
3. Currency diversification
Investing in global funds also gives you exposure to currency diversification. Which is to say, they can offer you a hedge against the fluctuating exchange rate, and you benefit from the depreciation of the rupee.
When you invest in global funds, the NAV is calculated based on the current exchange rate. Since the exchange rate fluctuates daily and the rupee has recorded depreciation over the past many years, you benefit from this depreciation as the conversion rate works in your favour. Thereby increasing your returns.
Thus, with global investments, you enjoy the dual benefits of growing economies and appreciating currencies in your portfolio.
4. Protects your portfolio from volatility in domestic markets
Since the world markets typically don't move in tandem with one another, you can effectively diversify and protect your investment across multiple global sectors. This is because volatility in one market will not likely affect your investments in other markets. For instance, even if the Indian market is facing a serious downturn, the US or the UK economy might be enjoying a stable market or an upward trend.
So, by investing in global funds, you get to balance your risk from the Indian market and bring some stability to your portfolio.
If you're looking at a long-term investment game with a geographically diversified portfolio, global funds are among the preferred investment options out there. However, it's always best to perform additional research and seek expert guidance.
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Policies, Codes & Other Documents