International Mutual Funds

\International mutual funds are hidden gems in investment. These ideally allow you to invest in different countries, empowering you to diversify the portfolio across various economies, currencies, and sectors. International funds also hold the potential to offer better returns as they predominantly invest in the stoke (equity) of various foreign companies. However, there are certain things you should be aware of, as foreign mutual funds are associated with certain risks and challenges, such as higher costs, taxation, currency fluctuations, and regulatory differences. Urban Money presents an overview of international mutual funds to make your investment journey trouble-free. We cover the basic concept of international funds, pertinent types available in the market, how to choose the best that suits you, applicable risks, and more. Let’s scroll down to learn more.

What Is an International Fund?

International funds are a type of mutual fund. As the name suggests, international mutual funds enable you to invest in assets outside India. Namely, an international fund holds over 80% of its assets in equities or equity-related instruments, while the remaining 20% is in bonds or security-related instruments. It is important to note that, at present, there are 66 foreign mutual funds available in the Indian market, with a total market value of ₹47,850 crores. This ultimately signifies the popularity of this outstanding investment option.

Types of International Fund

Let’s examine the pertinent types of international mutual funds:

• Global Fund: This allows you to invest in companies worldwide, which can include your home country as well.
• Regional Fund: This allows you to invest in companies in a specific region, such as Europe, Asia, or Latin America.
• Country-Specific Fund: This allows you to invest in companies in any country other than your home country, which may include the US, China, Japan, etc.
• Thematic Fund: This allows you to invest in companies that follow a certain theme or trend, such as technology, healthcare, or renewable energy.
• Index Funds: This allows you to invest in companies that are part of a foreign index, such as the S&P 500, the MSCI World, or the FTSE 100.

What Is the Difference Between an International Fund and a Global Fund?

Here are the applicable differences between an international fund and a global fund:

International Mutual Fund	Global Mutual Fund
Invests in securities from all countries except the investor’s home country	Invests in securities from all countries, including the investor’s home country
Provides diversification outside of the domestic market	Provides diversification across different markets and sectors
May have higher exposure to emerging markets and currency risk	May have lower exposure to emerging markets and currency risk
It may have a lower correlation with the domestic market	It may have a higher correlation with the domestic market
Example: Edelweiss Greater China Equity Off-shore Fund	Example: Franklin India Feeder – Franklin U.S. Opportunities Fund

How to Choose an International Mutual Fund?

Following are the certain key factors you may keep in mind when you choose foreign mutual funds:

• Investment Objective: You must determine the financial objective behind your investment. This objective can include how much and how long you want to invest, as well as your investment type, whether lump-sum or SIP.
• Risk Appetite: You must clearly understand the associated risk with international mutual funds. This risk signifies your ability or willingness to bear the impact of market fluctuation, which can directly affect your returns.
• Comparison: 66 different types of international funds are available in the Indian market. Each can differ based on investment types, return rates, fund manager styles, investment mandate, diversification, etc. Thus, you must conduct extensive research and choose the one perfectly aligned with your investment objective and risk appetite.
• Fees and Taxation: International mutual funds typically incur higher fees and taxes than domestic mutual funds. So, it is pivotal to consider the expense ratio of your chosen fund, which is the annual fee charged by the AMC to manage your money, along with the applicable taxation.

Risks of International and Global Stock Funds

Following are the expected risks in international mutual funds and Global Stock Funds:

Currency Risk

It signifies that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavourable changes in currency exchange rates. For example, if the U.S. dollar appreciates against the euro, an investment in a European company will be worth less in U.S. dollars, even if the company’s performance is unchanged.

Country Risk

It refers to political upheaval, financial troubles, or natural disasters that adversely affect the value of securities issued by companies in foreign countries or regions. For example, a war, a coup, a default, or a pandemic can disrupt a country’s economy and markets, affecting the companies operating there.

Cost and Taxation Risk

International funds may have higher expense ratios, foreign exchange fees, custodian fees, and transaction costs. They can also be subject to foreign withholding taxes, double taxation, or different tax treatments depending on the country of origin and the type of fund.