Should You Invest in International Mutual Funds?
Starting into investments is a difficult journey. Not knowing where to invest can be a scary decision to make. This article will help you make an informed decision about the overseas mutual funds. Mutual funds are investment schemes which invest your money in shares and equities.
Why should I invest in an international mutual fund?
Mutual funds are long term schemes that invest your money into companies to earn dividends. Overseas Mutual Funds are investments in companies overseas. This is a scheme which allows you to invest in equities of companies other than your home country.
A foreign mutual fundallows one to add companies not currently in their portfolio. Investing in International mutual funds has the added benefit of having debt tax laws against it. Investing overseas also have the added advantage of diversification of your portfolio.
Why should you diversify your portfolio?
If all your money is invested in one place, any sudden change with the economy can cause you to lose all your money. Investing overseas gives you the satisfaction of not having to worry about losing your money in the case of an economic crisis. Diversification of your portfolio also helps increase gains in revenue from the shares equity owned by you.
Who should invest in an International mutual fund?
Mutual funds, in general, are risky investments as it all depends on the economy of the country. International mutual funds hence are highly risky too. However, you can leverage the economic cycles of multiple countries at once to reduce your risks. This is advisable to people who are relatively younger as they can be more significant risk-takers with lower consequences.
Factors to consider while investing in a foreign mutual fund
Risk: There are definite risks when investing in a mutual fund. In this case, if you invest in an American based mutual fund, you wage against the dollar. The risk in this is if the value of the rupee falls, your investment is more profitable. While, if the value of the rupee rises, the value of your investment falls. In this way, one can gauge the risks associated with international funds.
Macro-economic factors: Since mutual funds deal with valuations of stocks and their rise or fall in value, the macroeconomic conditions of the country must be taken into account. Factors like an economic cycle, inflation rate, etc. must be taken into account to make a well-informed decision.
For example, a country going into recession would not be a great idea to invest in because the value of those stocks will continue to fall. An excellent viable option would be to invest in stocks in a country in an economic boom or recovering from a recession as their valuation will continue to rise.
Multiple economy benefits: Investing in foreign mutual funds allows you to maximize your gains in your portfolio by having a multi economy benefit. Multiple economies function in different cycles and hence reduces your risk. A more diverse portfolio is a safer one.
Tax benefits: Usually, international mutual fundsinvest in foreign stocks and equities instead of domestic ones. Hence these do not classify as equity funds. These are then considered as debt funds. The rules for STCG and LTCG for debt funds apply to this. STCG stands for short term capital gains. LTCG stands for long term capital gains.
Advantage of investing in international mutual funds
Geographic diversity: If all your capital is invested in stocks in the Indian market, your returns depend on the level of functioning and productivity of the Indian economy. Adding these funds to your portfolio allows you to make gains in the case of an economic setback in one market’s economy.
Cost-effectiveness of your portfolio: If the economy you are currently investing in has reached a high, it would not be advisable to invest your capital in its equities further. Adding foreign equity allows you to spend your capital in the most efficient way possible.
Access to experts: No mutual fund should be handled alone. Always go to an expert. Investing in foreign mutual funds is no different. Go to a fund manager and make informed decisions.
Types of international funds
Global Equity Opportunity fund: While the names while seem similar, this cannot be further from the truth. A global fund allows you to make investments in mutual funds in India as well as other countries. In contrast, an international mutual fund enables you to make investments only in foreign countries.
Regional funds: As the name suggests, this involves securities within a given geographical area in any part of the world.
Country funds: This allows the investor to invest in any securities in a single country. This will enable you to take advantage of the nation’s economic condition. You must be well prepared with extensive research.