What are International Mutual Funds? Types & Benefits
Introduction
When you invest only in one country’s stocks, your returns depend on that country’s market. International mutual funds let you invest in companies outside India. This helps you spread your investments across different economies and reduce risk. Many Indian investors are exploring these funds to tap into global growth opportunities. This article explains what international mutual funds are, the different types available, the benefits and risks, and how to get started.
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What are international mutual funds?
An international mutual fund is a fund that invests in foreign companies. These funds are also called foreign mutual funds or overseas funds. They give investors exposure to growth opportunities in other countries. Unlike domestic mutual funds, which invest only in Indian companies, international funds invest outside India, allowing you to benefit from global markets. Because of this global exposure, the structure and risks of these funds can be different from domestic schemes.
Some funds that invest worldwide, including the investor’s home country, are called global funds International funds, on the other hand, avoid the investor’s home market and focus only on foreign markets
Types of international mutual funds
International funds come in several categories. Here are the most common types:
- Global funds: These invest in securities issued in any country, including the investor’s home country. They aim to give broad exposure to markets around the world
- International funds (non‑home markets): These invest only outside the investor’s home country, providing exposure to markets that may behave differently from India
- Regional funds: These funds focus on a specific region or group of countries, such as Europe, Asia or Latin America. They allow investors to benefit from economic growth in a particular part of the world
- Country funds: Country funds invest only in a single foreign country. For example, a U.S. equity fund invests only in U.S. stocks This lets you target the growth potential of one nation but also increases exposure to that country’s specific risks.
- Global sector funds: These funds invest in a specific sector (like technology or healthcare) across multiple countries They offer exposure to industry trends around the world but are tied to the performance of that sector.
Benefits of investing in international mutual funds
International funds offer several potential benefits:
- Geographic diversification: By adding these funds to your portfolio, you diversify your investments across different countries. This means your returns are not tied only to the Indian market If the Indian economy is facing challenges, positive cycles in other countries can support your portfolio.
- Exposure to multiple economies: Investing in multiple economies allows you to benefit from growth in different parts of the world This can lead to higher returns over the long term if the selected foreign markets perform well.
- Cost‑effective portfolio: Carefully chosen international funds can help you create a cost‑effective portfolio. By investing in economies that are growing quickly, you could potentially achieve better value for your money
- Access to professional expertise: International funds are managed by experienced fund managers who understand foreign markets. This helps investors gain access to global markets through a qualified fund manager
- Sector and currency opportunities: Some funds allow you to invest in specific global sectors (like technology or energy) and may give exposure to strong currencies. This can provide a hedge if the rupee weakens.
Key takeaways before investing
- Investing in international funds exposes you to multiple economies and may reduce risk
- These funds can offer higher return potential, but you should be aware of the risks and taxation rules
- Understanding macroeconomic factors of different countries is necessary because political and economic conditions abroad can affect the fund’s performance
Factors to consider before investing
Before putting money into an international mutual fund, consider these factors:
Currency and market risks
Currency risk is significant in international funds. If the rupee falls against a foreign currency, the net asset value (NAV) of a fund investing in that currency increases. Similarly, if the rupee rises, the NAV falls In addition, overseas markets can be more volatile, and global events (such as trade disputes or political changes) can impact returns.
Macroeconomic factors
Political, economic and social situations in the foreign country or region can affect the performance of your fund. Keeping track of international news, policy changes and economic indicators is important when investing abroad.
Multiple economy benefits and diversification
Investing in international mutual funds allows you to benefit from the growth of several economies, which can improve your chances of earning higher returns This strategy also helps diversify your portfolio and reduces the risks associated with investing in only one country
Taxation of international mutual funds
International funds do not qualify as equity funds for Indian tax purposes because they invest mainly in foreign equity or bonds. As a result, they are treated like debt funds. As of the latest rules, units held for more than 24 months are considered long‑term and taxed at a rate linked to your income slab (without indexation) Short‑term gains (holding period up to 24 months) are added to your income and taxed according to your slab. Always check current tax rules or consult a tax advisor before investing.
Minimum holding period and LTCG rules
The minimum holding period to qualify for long‑term capital gains (LTCG) in international funds was reduced from 36 months to 24 months. The rate of tax for LTCG on international funds has been aligned with investors’ income tax slab, without altering the rate for short‑term capital gains These changes have made overseas FoF (fund of funds) schemes relatively more attractive for long‑term investors.
Read the Scheme Information Document (SID)
Before investing in any mutual fund, you should read the Scheme Information Document. The SID explains the fund’s objective, risk level, where it will invest your money and the fees you will pay It also contains information about the fund’s asset allocation, investment strategy, category and entry or exit loads Reading the SID helps you understand the fund’s strategy and check whether it matches your risk tolerance and financial goals The SID should be updated at least every six months
How to invest in international mutual funds
To invest in international funds, you can:
- Choose a fund house or platform: Most Indian fund houses offer international funds either directly or through fund‑of‑funds (FoF) that invest in overseas schemes. You can invest via a mutual fund platform, an AMC website or a broker.
- Compare schemes: Look at the fund’s investment objective, region or sector focus, past performance, risk level and fees. Use tools like mutual fund calculators to compare expected returns and costs
- Consider SIP or lump sum: You can invest a lump sum or start a Systematic Investment Plan (SIP). Starting with a SIPhelps average out purchase costs over time and may reduce the impact of market volatility.
- Monitor your investments: Keep track of your fund’s performance and review it periodically. Economic changes abroad may affect returns. Rebalance your portfolio if needed.
Conclusion
International mutual funds give you an opportunity to invest beyond India’s borders and benefit from global growth. They provide geographical diversification, access to multiple economies, and professional fund management However, they come with currency risk, country‑specific risks and different tax rules. Before investing, consider your goals, risk tolerance and the foreign markets you want exposure to. Always read the Scheme Information Document to understand the fund’s objectives, risks and fees With careful planning and regular monitoring, international mutual funds can be a valuable addition to a diversified portfolio.