Should I invest in International Mutual Funds?

Ever ordered something from Amazon, binge-watched Netflix, or scrolled endlessly on Instagram? Chances are, you’re already spending money on some of the world’s biggest brands, but have you ever thought about owning a piece of them? That’s exactly what investing in international mutual funds lets you do. 

From Apple and Google to Tesla, these funds help Indian investors tap into the growth stories of developed and developing countries. But, like any investment, it comes with its own pros, cons, and factors you must weigh before jumping in. 

That is why many people ask, should I invest in international mutual funds? Let us find out.

What are International Mutual Funds? 

The basic international mutual funds definition is that they are funds that invest predominantly in equity, equity-related instruments, and debt instruments of companies listed outside India. These funds are also known as overseas or foreign funds. 

An investor who is looking for a long-term investment can prefer this as an alternative to their investment portfolio. This fund invests its accumulated funds in the stock markets of countries such as the United States, the United Kingdom, Canada, Brazil, and others.

This fund helps to take advantage of global stock markets. However, understanding the market movements of these markets and the impact of economic changes on fund investments is important.

Types of International Mutual Funds

Here are the common types you’ll come across:

• Global Funds: These invest in companies worldwide, including those in India. So, it’s a mix of local and global exposure.
• Regional Funds: These target specific regions, such as Europe, the Asia-Pacific, or Latin America.
• Country-Specific Funds: These focus on a single country, like the US or China. 
• Thematic or Sector Funds: These invest in a specific global sector, such as technology, energy or healthcare. 

Why Should I Invest in International Mutual Funds?

The major benefit of investing in international mutual funds is geographic diversification in the investor’s portfolio. Investing in foreign markets helps to recover from the current local market crisis. There is a higher probability of long-term growth in global markets. Moreover, it provides an investment opportunity for investors to diversify across different markets, sectors, and risk classes.  

Investing in international funds also gives an advantage to global stock markets. However, it is important to understand the overall movement of these markets and the economic changes in these countries. 

One can also utilise the exposure to these funds by aligning them with their financial goals, such as a child’s higher education or marriage.  

A fund manager of a fund house can invest the investor’s money in the right places with the help of detailed data, technical expertise and experience in investing in foreign markets. This will help any new investor take advantage of opportunities in foreign markets through an international mutual fund.

How Much Should I Invest in International Mutual Funds?

Ideally, as per financial advisors, investors can invest up to 5%-10% of their portfolio in international mutual funds. However, this depends on multiple factors that investors must consider before investing. 

Factors to Consider Before Investing

Before jumping in, keep these key points in mind:

1. Risk Tolerance

International funds are more volatile than domestic funds because they depend on global factors like currency fluctuations, political changes or trade wars. Be ready for the ups and downs.

2. Investment Horizon and Goals 

Investors must know the investment goals for which they want to invest. Based on these primary factors, investors can allocate a portion of their investment to international mutual funds, which can help diversify their portfolios.

These funds work better if you stay invested for at least 5 – 7 years. If you need money in the short term, this may not be the best bet. 

3. Portfolio Allocation

Experts usually recommend putting 5% – 10% of your total portfolio in international funds. This keeps your exposure balanced and helps you diversify without overdoing it.

4. Currency Fluctuation

Your returns can go up or down based on how the rupee performs against other currencies. A weak rupee can boost your gains, but a strong rupee can reduce them.

How Do I Invest in International Equity?

One can invest in international mutual funds through Scripbox’s online platform. The following are a few simple steps for investing –

• Firstly, to start investing with Scripbox, one has to choose a plan.
• Secondly, they should set up an investment account.
• The next step is to make the payment. The payment can be made instantly or set up for a later date. 
• The money gets deducted from the bank after payment confirmation. The money gets transferred to the respective mutual fund house. 
• Finally, the mutual fund company allows investors to purchase units. Investors receive confirmation via email or SMS. This gets updated in the Scripbox account.

An investor can choose to invest a lump sum amount or opt for a systematic investment plan (SIP). 

Conclusion

So, should you invest in international mutual funds? If you have a medium to long-term goal, a decent risk appetite, and want to diversify your portfolio beyond India’s borders, these funds can be a smart addition. However, don’t invest blindly. Research the fund’s track record, understand which economies it invests in, and stay informed about global events that may impact your returns.

It is also important to note that these funds come with certain limitations on how much funds they can accept from investors. The RBI has imposed a cap on how much the Indian mutual fund industry can invest in foreign securities, currently set at an industry-wide limit of $7 billion, with a $1 billion cap per mutual fund house. In addition, there’s a separate $1 billion limit specifically for investments in overseas exchange-traded funds (ETFs).

That said, when used wisely, international mutual funds can offer access to global growth opportunities while helping you diversify and protect your wealth across geographies.

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