As an investor in today’s world, one is spoiled for choices. A range of investment options catering to various economic requirements, risk tolerance levels, and investment time frames are available to investors. Of the various options up for grabs, mutual funds are preferred by new and seasoned investors alike due to the range of benefits they extend. While domestic mutual funds are often the preferred choices for a common investor, one can also explore wider avenues by going global with their investments.
International or global mutual funds act as an exciting investment option for those looking to diversify their portfolio and grow their wealth. Let us look at what international mutual funds comprise and five reasons why you could invest in them.
What are international mutual funds?
International mutual funds, as the name suggests, are mutual funds that deal with the securities and shares of companies listed in another country. When you invest in international mutual funds, your money is invested in a company outside your home country (India, in this case) and you pay for the company’s equity shares in the home currency.
With globalisation, advancement of fintech services, and increasing digitisation, the world market has opened up for investors. We are no longer divided by conventional geographical borders when it comes to finances.
In such a situation, there is no reason why investors should lose out on wealth growing opportunities available in the global economic market. International mutual funds fit this sweet spot where there is adequate awareness about the type of investment (mutual funds) and benefits of untapped potential in the investment entities (e.g., a foreign company’s shares).
There are various types of international funds, such as global funds, regional funds, country funds, international thematic funds, international commodity funds, and international global sector funds.
Here are five reasons why you should invest in international mutual funds
1. Diversification of portfolio
Never put all your eggs in one basket – this age-old proverb also applies to the financial world. Having a financial portfolio that is well diversified not only allows you to be more flexible with your funds but also improves chances of better returns with lower risks. Now with international mutual funds, you can easily diversify your portfolio. Your risks and returns are distributed across various stocks and securities in different locations. So international mutual funds help you achieve diversification in terms of asset classes and also give you variety in terms of geographical locations.
2. Benefits of low-correlated markets
The advantage of investing in an international mutual fund is that one country’s socioeconomic conditions no longer govern your returns and risks. Markets in different countries behave in an unsynchronised manner with respect to your home country. There may be cases when the market in one country is crashing, but another country is seeing tremendous growth. So in such situations where your home market (India) is going through a lull, another country’s thriving market might ensure that the wealth generation is not halted. So you can manage region-specific investments efficiently with the help of international mutual funds.
3. Awareness of international brands
Exposure to new investment options is always a sound financial practice. Opting for international mutual funds can introduce you to a whole new world of business outside your home country. Knowledge of international brands can help you understand varied economic practices and widen the scope of your investments. In particular, several countries have recorded sustained growth in specific industries. The technology industry in the USA, for instance, has grown from strength to strength since its first boom in the 1990s, making it a lucrative industry for investors.
Similarly, the oil and gas sector of Middle East countries has left investors richer each year. As per the International Monetary Fund, within the next four years, energy-rich Middle East nations are expected to generate $1.3 trillion in additional oil revenues. Investing in the mutual funds of larger companies in this sector in Middle East countries often promises good returns.
By closely following international brands of repute and comparing them to their Indian counterparts, you may be able to form a long-term investment strategy that suits your needs and adapts to the evolving nature of the global market.
4. Leveraging currency fluctuations
Another critical factor to remember when investing in the global financial market is the currency exchange rate. Your country’s currency may be performing better or worse than another country’s currency. And by investing in an international mutual fund, you are benefiting from this exchange rate disparity. For instance, in 1947, the value of 1 US Dollar was 4.16 Rupees. By 2010, the value of 1 Dollar had risen to 45.73 Rupees. As of December 19, 2022, the Rupee ended at 82.27 per Dollar. So, returns from a mutual fund investment you made in 2010 in America will have nearly doubled purely as a function of foreign exchange in 12 years. This is a profit you will make without considering factors like capital appreciation and the fund’s performance.
So, if you have invested in mutual funds in the United Kingdom or the USA (both countries with currencies stronger than the Indian Rupee), you are likely to enjoy returns that can be better than those offered by domestic mutual funds.
5. Managing inflation
A good financial plan is one that allows you to stay two steps ahead of inflation. The idea is to grow your wealth every year and enable it to act as a hedge against inflation. In this regard, international funds are a good investment option as the funds’ risk and reward parameters are independent of your home country’s inflation rate. Investing in an international mutual fund in a country that historically has a lower inflation rate than your home county is a good long-term investment option. Know how various asset classes perform during Inflationary periods –click here.
Bottom line
As an investor today interested in international mutual funds, you can expect to be spoiled for choice. Over the years, several international mutual funds have proven to be great financial choices, earning investors impression returns. For instance, DSP World Mining Fund- Direct-Growth with 5-year annualised returns of 15.36%, ICICI Prudential US Bluechip Equity Fund- Direct-Growth with 5-year annualised returns of 15.02%, and Franklin India Feeder Franklin US Opportunities Fund- Direct-Growth with 5-year annualised returns of 11.64% are some examples of popular international mutual funds in 2023.
There are several benefits of expanding your portfolio to include international mutual funds. Investors can explore the world economic market through an international mutual fund and leverage factors like inflation and currency rates to benefit them. The idea, however, is always to choose a mutual fund – international or domestic –that fits your financial goals, risk tolerance, and investment horizons.
Disclaimer: This article has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The Stocks mentioned herein is for explaining the concept and shall not be construed as an investment advice to any party. The information / data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this article are as on date. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article. The sectors mentioned herein are for general assessment purpose only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. Past performance may or may not be sustained in future.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
