The 21st century is one of the best times to invest in varied investment avenues. Today, an investor can easily invest in companies around the globe through multiple ways. However, investing in international companies requires a good understanding of those markets.
This is where a global mutual fund comes in. Global mutual funds are an attractive option as you can diversify your portfolio by investing in companies worldwide.
Let’s find out more about global mutual funds and how they work:
Global mutual funds invest in companies from multiple countries and give you exposure to international markets along with the domestic ones. Domestic mutual funds focus only on a single market but global funds allow you to benefit from the economic growth of both Indian and international companies.
These funds are becoming popular as more people look beyond domestic markets to explore better returns and reduce portfolio risk.
Open Demat Account and Start Trading!
A common question many investors have is whether global mutual funds and international mutual funds are the same. They are similar in many ways but have a slight difference:
● Global mutual funds invest in companies across all countries, including your home country.
● International mutual funds invest exclusively in companies outside your home country.
If you’re based in India, a global fund would include both Indian and foreign companies, whereas an international fund would only invest in foreign companies.
Types of Global Mutual Funds
Global mutual funds come in different structures based on how they invest and where they allocate their funds. Here are the major categorisation of global mutual funds based on where the funds are invested:
Direct Investment: In this structure, the fund manager directly invests in global companies and actively manages the portfolio.
Indirect Investment: The funds are not invested directly. Instead, they follow these approaches:
● Feeder Funds: Your money is pooled and transferred to an offshore fund managed by a foreign fund house.
● Fund of Funds: Your investment is spread across a collection of international funds to diversify your exposure.
Mix of Foreign and Domestic Equity: These funds allocate investments between international and domestic markets.
Regional Funds: These focus on specific countries or regions. Based on the expertise of the fund managers, they invest in specific companies that they have a strong idea about.
Truly Global Funds: These funds have no geographic restrictions and invest in companies from all around the world.
Thematic Investments: Some global funds focus on specific themes or sectors. For instance, you could invest in a global mutual fund that targets the energy sector or technology companies worldwide. Many fund managers also invest in companies that maintain strong ESG standards.
If you're an Indian investor exploring global mutual funds, some of the top-performing options based on 3-year returns are Invesco India – Invesco Global Equity Income FoF Direct-Growth, Bandhan US Equity FoF Direct-Growth and Motilal Oswal Nasdaq 100 FOF Direct – Growth.
Features of Global Mutual Funds
Global mutual funds are a blessing for those who want to add an international exposure into their portfolios. Here are the key characteristics that make global mutual funds so powerful.
Diversification: Global mutual funds give you the option to spread your investments across multiple countries and sectors. Adding international exposure to your portfolio balances risks and provides a layer of protection against market-specific downturns.
Hedge Against Domestic Risks: Global investment safeguards your portfolio against underperformance in the Indian market. For example, if Indian markets are struggling, the strong performance of global markets in your portfolio can help offset potential losses.
Access to Global Market Leaders: Global funds allow you to invest in world-renowned companies like Apple, Google, or Tesla. These are popular global leaders that aren’t listed on Indian stock exchanges. These investments allow you to benefit from the success of the international market.
Hedge Against Inflation: You can also protect your portfolio from the eroding effects of inflation. These funds provide exposure to international markets, which perform differently than your home market which further helps to preserve and grow the real value of your investments over time.
Tax Implications for Global Mutual Funds
Global Mutual Funds that invest in foreign markets are classified as non-equity funds for tax purposes. Here’s how the taxation works:
1. If you sell your holdings within the first three years of purchase, the gains are added to your taxable income and taxed as per your applicable income tax slab.
2. If you sell the units after three years, the gains are taxed at 20% with the benefit of indexation.
Conclusion
Global mutual funds open the door to international markets. It's a golden opportunity for you to diversify your portfolio and safeguard your portfolio against domestic market fluctuations.
Adopt a well-thought-out strategy and maintain a long-term perspective and that's how your investment portfolio will shine despite the downturns.
Financial Calculators: SWP Calculator | EMI Calculator | SIP Calculator | Compound Interest Calculator | CAGR Calculator | Sukanya Samriddhi Yojana Calculator | Retirement Calculator | Mutual Fund Returns Calculator | EPF Calculator | Inflation Calculator
Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price