Any financial advisor worth their salt will advise you to maintain a diversified portfolio. This means you need to be investing through a lot of investment options - and an even healthier way to maintain a diverse portfolio is to have a portfolio with diversification across various economies and not just the investment tools available in your country.
This article will outline everything you need to know about international mutual funds. Also known by their alternate names, overseas funds or foreign funds, an international mutual fund invests in equity and debt stocks in international markets.
To understand what are international mutual funds, let's deep dive into the types of international mutual funds, features of international mutual funds, who is best suited to invest in international mutual funds and how you can invest in an international mutual fund.
A global fund is a type of international mutual fund that allows investors from all countries to invest, including investors from their home country.
Regional funds, like the name suggests, depends on the geographic region. For instance, if you invest abroad, focusing on a particular geographic area, then it can be counted as a local fund. A few investors focus on buying multiple regional funds instead of global funds.
When an investor invests in a fund that is available only in one foreign country and not anywhere else, it is called a country fund. Because the data is not spread across various countries, this is one of the easiest funds to invest internationally.
A global sector fund pays attention to a specific sector of the economy in other countries. This works well for investors who wish to invest in a specific sector.
Like we mentioned earlier, diversity is key to a good investment portfolio, and that is what is offered by an international mutual fund. The portfolio is not restricted to the markets in India and allows investor access to a variety of financial instruments across the world.
When you invest internationally, your mutual fund will invest in financial instruments across the world. This means you can capitalize on the gain from different economies. Investing across economies also allows the investor to mitigate risk and ensure minimal loss in times of volatility.
While an international mutual fund offers higher returns because of a diverse portfolio and investments through various financial instruments, the risk involved is higher. This is because foreign markets face political, global and economic risks that can affect the outcome of the investment.
If you are a novice investor, it will be difficult for you to judge markets in your own country, let alone the state of markets in foreign countries. But when you invest in an international mutual fund, a fund manager will be able to help you invest in the right places with the help of exhaustive data, technical knowledge and experience from years of investing in international funds.
Investors looking for a diversified investment portfolio not just in a domestic market but also in an international market must consider investing in international mutual funds. But a good financial advisor will tell you that you shouldn't exceed more than 15% of their overall investments portfolio.
Investors who have had the time to study international markets and have a working knowledge of financial instruments and factors that affect them should consider investing in an international mutual fund.
Investors with a high-risk appetite can consider investing in an international mutual fund since the risk involved while investing in international markets (which predominantly invest in equities is considerably higher.
If you are interested in investing in an international mutual fund, you can do so in two ways - by investing online and offline. You can invest online through online investment portals or through asset management companies that offer the international mutual fund. You can also invest using the conventional, offline method where you invest through a broker or submit a filled form at a fund house.
Before you invest in an international mutual fund, don't forget to look up the tax implications and the exit and entry loads.