There is one more international equity fund to choose from, the new fund offer for NYSE FANG + ETF and FOF has been launched recently by Mirae Asset India. If you haven’t ventured into international investing yet, this may be a tempting offer given how well this set of stocks has performed in the last few years.
However, before you log in to this one as an investor, do you know that there are at least 46 different international funds you can invest in, across 14 different themes and you have access to direct international stocks too?
While some select schemes have matched performance with domestic equity mutual funds in the last year, the category as a whole hasn’t kept up even with returns from large-cap mutual fund schemes.
Given the performance lag, is investing in international equity worth your while?
One of the basic tenets of a good portfolio is diversification. You must not have everything invested in one asset or financial product. As Indian investors, our natural propensity is to be invested in domestic equity shares and mutual funds. However, that exposes us to one type of risk, of Indian equity markets.
Take the last month as an example, while the Nifty 50 index is down 4% in this period, the Nasdaq index is up 6%. Diversifying across geographies is aided by international investing and this, in turn, helps you cushion portfolio returns when one geography is not doing as well as the other.
While our bias for Indian equities will remain, by adding some amount of international equity, one can have a balanced exposure across global opportunities too along with the benefit of diversifying risk.
Moreover, international funds or stocks give you the opportunity to own shares in businesses that are otherwise not present in your own geography. It’s an opportunity to own innovative technology-driven business and also those which operate on a much larger global scale.
Long term rupee hedge
If you invest in international stocks through mutual fund schemes, you also get the advantage of a hedge against the rupee’s long-term depreciation. Over time the Indian rupee has steadily fallen in value against benchmark global currencies like the US dollar, Euro and Pound.
For those who have expenses overseas like education or frequent travel for work, the rupee cost of spending abroad has only gone up.
International funds run a fund of fund structure, where money is invested by domestic investors in India in rupees, this is then converted and invested in the underlying overseas fund in the relevant currency that the fund is denominated in.
When you redeem your units, the process is reversed and overseas currency is converted to rupees and returned to you. Assuming that you have been a long-term holder for a few years and the overseas currency has appreciated against the rupee, then along with the returns from the scheme itself, you will also gain from currency movement.
Given all the options that are now available to you, international investing should be a definite tick mark on your investment radar. Be mindful of how much you allocate and to what kind of stocks and funds, but don’t miss out completely on this long-term wealth creation opportunity.