What are international mutual funds?
International mutual funds invest primarily in equities, equity-related instruments, and debt securities of firms and entities listed outside of India. Many of these funds are in fact fund of funds schemes, with underlying overseas funds that invest in international markets.
How Do They Work?
International mutual funds are invested in the same way as any other equity mutual fund. The money is invested in rupees, and investors are given units of the funds in return. The money is invested in equities of companies that are listed on markets outside of India by the fund manager. The fund manager can now invest your money in overseas companies in one of two ways.
- By purchasing equities directly and constructing a portfolio
- Alternatively, you can invest in an established global fund that already has a pre-designed portfolio of foreign company equities.
Regardless of their choice, they are managed by Indian mutual fund providers. The Securities Exchange Board of India, like all other mutual funds, regulates them (SEBI).
What are the many kinds of international funds?
Investors can participate in a variety of international mutual funds available in India. Each of these funds approaches global investment in a unique way. We’ve divided overseas money into three categories based on these approaches:
Thematic International Funds:
These are similar to domestic thematic mutual funds in that they invest according to a theme. A domestic thematic fund focused on infrastructure, for example, would invest in equities of cement, power, and steel industries. A themed international fund, on the other hand, will invest in the stocks of overseas companies that are related to the theme.
Region or Country-Certain Funds:
These funds invest in the stock markets of a specific region or country, as the name implies. For example, an international fund that only invests in US stock markets or a fund that exclusively invests in Asian stock markets. The key goal is to take advantage of the chances created by these marketplaces in order to make a profit.
They are diametrically opposed to regional or country-specific funds. Rather than focusing on a single country or region, these funds invest globally. They have a portfolio that includes equities from companies all across the world. This implies they are able to take advantage of possibilities in multiple markets at the same time. Diversification is the key goal here. Even if one of the markets does not perform well, the investor’s investments in other markets will save the day.
What are the benefits of investing in international mutual funds?
– Availability of businesses that aren’t listed on the Indian stock exchange.
– High-growth businesses can also be found in regions that grow at a slower pace than India.
– Enables shareholders to diversify their portfolios by exposing them to international markets.
– Provides a solid hedge against the rupee’s depreciation.
– There is little link between the Indian and international markets.
– Lowers the risk of negative local occurrences influencing the entire portfolio, as domestic market volatility rarely influences international markets.
What are the tax implications of investing in international mutual funds?
–Short-term capital gains earned on units redeemed before three years of investment are taxed according to the investor’s tax bracket.
–Long-term capital gains (LTCG) earned on redeeming units after three years of investment are taxed at a rate of 20%, with indexation benefits.
-Dividends are taxed according to the investor’s tax bracket. The mutual fund house deducts 7.5 percent TDS (until March 31, 2021 owing to the pandemic; generally 10%) from domestic investors. TDS is imposed on non-resident investors at a rate of 20%. TDS deducted tax credit can be claimed at the time of filing returns.
Investing in international mutual funds in India carries a number of risks
– Changes in foreign exchange rates, particularly the rupee’s appreciation, can have a negative influence on the returns of international funds.
– International funds subject their investors to the market, political, and economic risks of the foreign economies in which they invest. Investing in emerging or frontier economies with a lack of regulatory framework, market efficiency, and liquidity carries a higher risk.
– International funds with concentrated investment portfolios may face greater risk, less liquidity, and more volatile returns.
Who can start investing in international mutual funds?
-Investors who seek to spread their equity portfolio regionally to reduce risk.
-Investors seeking a hedge versus rupee depreciation, notably those establishing trusts for abroad schooling or tourism.
-Those with a higher risk tolerance and a 5-year investment horizon who want to broaden their domestic equity exposure by participating in global markets.
-Investors who are willing to accept the increased political, financial, and economic risks associated with investing in overseas markets.
Frequently Asked Questions (FAQs)
Q1. What percentage of my portfolio should I put into international funds?
You do not need a significant sum of money to invest in overseas funds. To invest in international funds, you might start with a small SIP sum of Rs. 500. How much you should put into overseas funds is entirely dependent on your objectives, risk tolerance, and financial circumstances.
Q2. What are my options for investing outside of India?
Investors with little knowledge of foreign markets but a desire to invest in foreign markets and firms can do so through international mutual funds. The fund manager will assist you in gaining exposure to some of the world’s greatest markets and stocks. All you have to do now is put your money into the market.
Q3. Is it wise to invest in international mutual funds?
International funds provide geographical diversification by allowing you to participate in a variety of international marketplaces. It allows you to own shares in some of the world’s most successful companies. Finally, currency appreciation allows you to earn more money. International mutual funds are an excellent investing option because they offer so many benefits.