The mutual fund space is a large and versatile one, and one that supplies handsome returns to investors belonging to diverse risk profiles. What’s more, mutual fund investments aren’t limited to India, but extend beyond geography. International funds, also known as foreign funds, allow you to park your money in debt securities, equities, and equity-related instruments in overseas markets.
If you want to leverage investment opportunities around the globe, add international mutual funds to your portfolio. Read on to understand how these funds work and how you can reap good returns on your investment.
How do international funds work?
International mutual fund schemes invest in equity and debt markets across the globe except the domestic one. For instance, an international equity fund will make investments in stocks listed on foreign exchanges. The fund manager can directly buy stocks or invest in a global fund with a pre-designed portfolio comprising stocks of international companies.
Indian mutual fund companies administer your international fund investments and are regulated by the Securities Exchange Board of India (SEBI).
Types of international mutual funds
#1 Global funds
Global mutual funds invest in debt and equity securities globally. Investing in a global fund allows you to tap into opportunities in different markets simultaneously. So even if one market fails to perform well, your investments in other markets can continue fetching you returns.
#2 Regional funds
This type of international fund scheme invests in companies from a particular geographical region. For instance, a fund could be focused on the APAC market and thus invest in different securities in the region.
#3 Country Funds
These funds invest in securities belonging to a specific country. For instance, a foreign fund could invest only in the UK stock market or the London Stock Exchange. Such investments allow you to leverage market opportunities arising from a well-performing economy, thus fetching you good returns.
#4 Global sector funds
Global sector funds primarily invest in companies belonging to a certain industry. For instance, a global sectoral scheme’s mandate could be to only invest in mining companies around the world.
How international funds invest your money
There are two ways an international fund invests your money – directly or through a fund of funds (FoF) structure. In a FoF, the mutual fund invests in another fund that makes direct investments in international markets. This means your fund house’s manager is not directly buying and selling international stocks. Instead, they are purchasing the units of another mutual fund.
Currently, 44 international funds operate in India. Of these, 37 make investments through the FoF structure while only 7 trade directly in international markets. Whichever type of fund you ultimately choose, it’s important to understand whether it directly invests in foreign securities or takes the FoF route.
Features of international mutual fund investments
If you only invest in domestic securities, your portfolio’s value will rise and dip with market fluctuations. By adding foreign funds to your portfolio, you can benefit from the positive market cycles of other countries as well.
“Don’t put all your eggs in one basket” is a timeless piece of investment advice you’ve heard time and again. By spreading your funds across asset classes, you invest in financial instruments not restricted to Indian markets and, thus, minimise investment risks.
Market risk and currency exposure
While foreign mutual funds can generate superior returns, the risk involved is higher. Why? Because political events, changes in regulatory conditions, and fluctuations in the international markets or industries can impact your fund’s performance.
However, international mutual funds give you exposure to foreign currency. This means any depreciation in the home currency or appreciation in the foreign currency can boost your returns.
Additional Read: Investment Strategy during Market Highs
Over to you
Ready to start investing in foreign markets? If you are looking to diversify your investment portfolio, research all about international funds with Tata Capital’s Moneyfy app! Set financial goals, compare investment options, and choose top-rated funds that suit your risk appetite.