This post is written by Mr. Santanu Debnath, who runs a Multi-Niche Blog – MyDailyLifeTips.com.
Are you investing in Mutual funds regularly? Have you heard about International mutual funds?
If yes, then do you know why you should start investing today? If you are a regular follower of any personal finance blog or a stock market news channel, then you might have noticed everyday analysis of stock markets of various countries like Dow Jones of United States, Brazil Bovespa Stock Index, Canada S&P/TSX 60 etc. Now, one can invest on those markets as well with the help of International Mutual funds.
In this article I will share a basic overview of international mutual fund, why one should invest on such funds and what are the other facts one should know before investing in such funds.
What is International Mutual Fund
If you know the definition of Mutual fund, then the meaning of International fund is also very simple. In this fund the accumulated money will be in stock markets of other countries like USA, Brazil etc.
International mutual funds are the portfolio of equities, bonds, and money market securities traded in foreign market. Because of the diversification they offer, these funds are gaining more and more popularity.
Why one should invest in International Mutual Fund
India is a developing nation which is currently attracting many foreign investors. There are many such countries in the world, where one can invest via overseas funds and get a good exposure.
There are many benefits associated with them; like introduction to emerging markets, commodities boom, or business cycle of different markets.
If you understand the meaning of portfolio diversification, then these funds will add huge value to your portfolio. Whenever your domestic market is down, other markets may perform better and in this way your net asset will stay positive in the long run.
According to last one year’s data, the top 10 international mutual funds has shown huge returns ranging from 26% to 50%.
There are various benefits of investment in international mutual fund. If chosen wisely, your return from these are much higher compared to domestic markets.
Better Returns than other MFs: An international mutual fund provides much better returns than any other type of MFs. To avail better returns, you can have few foreign funds from different international markets.
Growth of your Principal Amount: Foreign fund investment can expand or grow your initial capital to a great extent. In case of international MF, you can choose between funds of various overseas markets. So chances are more that your amount will grow significantly.
Better Investment Portfolio: Foreign funds are mainly ideal for those investors who want a diversified investment portfolio. To get optimal returns from investment in foreign mutual funds, Investment in those funds should not have much link with the domestic market.
Risk of Investment
Besides general mutual fund knowledge, one must know few more facts before investing in these Mutual Funds.
Although by investing in Mutual funds, one actually minimizes the tension of tracking individual company’s track record; still people can’t track those companies which are based outside India. In case of International mutual fund, you may find it difficult to get information how the companies linked with those funds are performing, are there any regulatory or change in business plan happening etc. So the upcoming markets can be affected with the economical and political changes of those countries.
I believe, almost everyone invest in mutual funds after analyzing the track records of that fund. As international mutual funds are new in Indian market, you may not find enough historical data for few of them.
In stock market, any crucial news related to a company play a huge role. You might have noticed that before declaration of national election result or any company’s new policies or budget; market reacts either in a positive or negative way. As the time zone of international market is completely different from ours, there will be a risk of missing such timely updates.
Fluctuations in the currency rate of different countries can affect your investment very significantly, as it is very difficult to know the financial stability of any country. This thing completely depends up on how the local currency is trading with the international currency. E.g. if you invest in any USA based fund and you have received a return now then definitely it is better compared to what you would have received 2 years back.
Anyway, these points may not be applicable for an investor who invests for a long term point of view, rather tracking the fund performance on a regular basis.
Income tax rules on International Mutual funds
The tax liabilities will be similar to debt mutual funds only. Means a long term capital gain tax will be applicable as per below rules:
- Without Indexation – 10% tax on capital gains
- With Indexation – 20% tax on capital gains
Examples of International Mutual Funds
So what are the foreign funds available now? Below are examples of few mutual funds that are available currently in the international market.
- ICICI Prudential US Bluechip Equity Fund
- DSP BlackRock US Flexible Equity Fund
- Mirae Asset India-China Consumption Fund
- DWS Global Thematic Offshore Fund Growth
- JPMorgan JF Asean Equity Off-shore
To conclude the article, I will say that international mutual fund will open new investment options in mutual fund segment which will provide more diversification as well as a better return. To make wise investment decision, one should do a detailed research about the international market that they consider to include in their investment portfolio.
International mutual funds are a useful way of reducing the overall risk of one’s portfolio and we can hope that these will be seriously considered by all the investors in coming days. But one should try to follow the thumb rule of 70:30 or 75:25 for domestic & international market from the mutual fund portion of their investment portfolio.
Hope you find this article useful. Share your thoughts and query related to this topic.
14 thoughts on “Investing in International Mutual Funds: Overview, Benefits & Risk Factors”
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My question is: is there a required minimum amount to invest in this international Mutual Fund, if so how much is it?????
Would love to know a lot abt this
Nice point about portfolio diversification: international stock markets rarely go up or down at the same time, diversifying by investing in a number of international mutual funds will cushion an investor against financial loss due to irregular stock markets.
Actually the options are very limited in India to invest in International markets unlike US where you have so many ETFs.
Surprised you haven’t mentioned Franklin US Feeder and Motilal Oswal ones.
I have been in Franklin Feeder for a year can’t say returns are spectacular.
Indexation will apply on the Rupee Gains and not on the USD or EUR etc gains.
Question is how will Rupeee gains be measured. Which days exchange rate will be used. Is it Closing rate of the day or average rate of the day ?
Just to add one thing regarding this – most of the international mutual funds are feeder funds, therefore a simple google search on the primary fund (let me take DSP BR above), will give you links to the parent site (here blackrock) or other sites such as morningstar that should give you info on the underlying holdings. If they are US listed (as most are), you can always pop on to the company website and get the annual reports.
Good day! I have entered into the Mutual fund world. Happy to know we are having Foreign MF also.
You could go over more detail regarding income tax.
In case of debt funds, both STCG and LTCG apply. If we withdraw before 3 years, STCG applies.
Thanks Manshu for this opportunity to be a part of your blog. 🙂
Mutual Fund sector is really growing day by day, as many people are actually understanding the power of investing in stock market. A little analysis and a long term approach can really play a good role to make wealth for future.