The mutual fund schemes that invest in foreign markets are known as international schemes. They can be country-specific, thematic fund, or commodity based international funds. There are some funds that invest in industries/sectors like energy, oil and gas, agriculture, or real estate etc.
International mutual funds give extra returns when the Indian market is not doing too well or rupee falling against major foreign currencies. But for that one needs expertise because it is a complex subject. Retail investors should not directly invest in mutual funds that are based abroad. But it is better to take the route through investing in Indian companies offering international mutual fund. Also, the fund manager should be well versed in the international market.
The international mutual fund is similar to an overseas fund or foreign fund. It is a mutual fund that invests in companies in countries other than where they are based. Investing in these funds means more risk exposure but at the same time, there are chances of higher returns.
Due to the shrinking world (technologically), investors are getting more aware of investment options available to them throughout the world which also helps in portfolio diversification. Through this fund, the investor can also tap the earning potential of different markets.
For investors, international mutual funds offer a good opportunity to diversify their portfolio by being a part of the growth story of companies around the world. Though investing abroad has its own set of benefits and risk. We have discussed a few factors here.
Risk factor – Currency exchange rates fluctuate and that has a bearing on your earnings.
Requires constant vigilance – The social, political and economic changes can impact international mutual fund performance differently. One has to keep constant track of all these international happenings occurrences.
Better market returns – By making clever use of the opportunity and capitalizing on multiple economies the portfolio can fetch higher returns. By diversifying the investment portfolio its quality can get a boost.
Market risk – Foreign country’s market fluctuation and sectoral markets like energy, information technology, automotive, construction, banking, manufacturing, metals, and mining etc. can impact the fund performance. One should make informed choices.
Taxation – Every country has different taxation setup and can prove to be a potential minefield. It can work in your favour or may be against. There are chances the foreign country may have tax understanding/treaties with the operating country.
There are a few advantages of international mutual funds. Different countries are in different phases of their economic growth so diversification in different geographies helps.
When the market economy is low in the home country, an international mutual fund can compensate as they invest in countries which are economically in the emerging phase.
It is a fact that few sectors (defence, technology, oil, and gas) get thrust due to their political or geographical location. International mutual funds tap this opportunity to increase their return rates. But, they avoid countries where civil wars or political turmoil is a problem.
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