International mutual funds are those which make investments in foreign entities and they may also be referred to as foreign/overseas funds. Investments made in such funds may have higher exposure to risks although the chances of earning lucrative returns are also higher. These funds are mostly preferred by people as long-term or alternative investment options. Diversifying investment portfolios is the need of the hour in order to spread risks and tap income opportunities in various global markets. Hence, these funds deserve a closer look on your part.
Investing in international mutual funds- Key things worth knowing
Several investors prefer foreign funds for a plethora of reasons including diversification of their portfolios as mentioned above and also for widening their skills and experience. Additionally, there are varying economic movements in countries across the globe and hence simultaneously investing in diverse global economies may minimize risks of losses and ensure better returns. Those who prefer a passive approach towards investing should steer clear of these funds.
Always choose a fund after carefully scrutinizing its track record over a sustained time period. Here are some other aspects that you should keep in mind at all times.
- Market risks- Exchange rates of currencies are subject to fluctuations on a daily basis. Suppose if you are investing in an international mutual fund in the United States, then if there is a fall in the rupee versus the dollar, then your net asset value (NAV) will go up and vice versa.
- Tracking/Monitoring- These investments necessitate continual monitoring or tacking of the fund and its performance. This is something that you should factor in.
- Taxation- Taxation has to be carefully understood before you make the investment. The returns are subjected often to LTCG (long term capital gains) tax.
Major benefits of investing in these funds
There are several advantages of investing in foreign funds as well. Here’s taking a look at the same:
- Portfolio Diversification from a geographical perspective.
- Accumulate wealth for meeting future goals like the higher education or wedding of your child.
- Global exposure is earned with advice from a qualified advisor.
International Fund Types
There are quite a few types of mutual funds in this category which you should know about.
- Global Funds- These funds are not foreign funds from a traditional context. Funds which are available worldwide, including in their home country, are referred to as global funds. International funds are those which are solely available in their countries of origin.
- Regional Funds- These funds are based in a specific geographical area or region. They are hence local funds.
- Country Funds- When investments are deployed in a fund which is solely available in a single foreign country, this is known as a country fund.
- Global Sector Funds- These funds carefully highlight specific economic sectors in foreign countries. They are usually focused on a specific industry/business sector.
Investing in international mutual funds could be a good idea if you’re an active investor with experience and market knowledge. Also, taking professional advice is always recommended.