Consider the times that we live in, where there is virtually no border when it comes to information across different countries. Would not it be amazing if you could make the most out of such information about trends and companies? This is where international mutual funds come into the foray. These mutual funds not only allow you to invest in stocks of other countries but also add diversification to your portfolio.
Understanding international funds
International mutual funds are funds that invest in companies that operate in any other country apart from India. These funds are also known as foreign funds or overseas funds. If you get a hunch that a specific country or certain companies of a country are doing well, backed by data, you can invest them via international funds.
Here are the different types of international mutual funds that you have access to.
- Global Funds
Though they might sound a bit similar, global funds and international funds are quite different. Global funds invest in companies across the globe, which might even include your native country. On the other hand, an international fund invests in companies that reside outside your country.
2. Sectoral Funds
Sectoral or thematic funds investment companies that belong to a specific sector or theme. Some common examples include health care, real estate, IT, oil and gas, etc.
3. Regional funds
Regional funds are a subcategory of international funds, which gives you exposure to certain regions, such as China, the United States, European countries, etc. if you are feeling optimistic about a certain region and feel it is going to grow over the next few years, investing in a regional fund can help you make the most of it and diversify your portfolio at the same time.
Why you should consider investing in international funds?
Investing in international funds brings a lot of advantages to the table. Here are some of them. And why you should consider investing in an international fund
- Diversification
Almost all investment principles suggest not to put all your eggs in one basket. The same applies to mutual funds as well. Investing in international funds allows you to diversify your portfolio. Not all the global markets behave in the same way at the same time. Investing in international funds will allow you to balance out the periods when the Indian markets might not perform as expected. International funds also allow you to invest in sectors or themes that you might not have invested in your portfolio.
2. Strengthen your portfolio
The Indian markets are at their all-time high, making it a bit expensive to invest. It can be a good time to explore international funds and invest in other growing countries.
3. International stocks with management
If you have been thinking about investing in international stocks but are not sure where to start, an international mutual fund can be a good starting place. It allows you to gain the right kind of exposure with expert management. Without ever having to worry about brokerage, buying or selling stocks, and any other technicalities that might otherwise make it difficult.
4. Reduce currency risk
If you are predominantly invested in a single currency any fluctuation can impact the performance of your portfolio considerably. Investing in an international fund can reduce such risks as you get a chance to invest in different currencies.
Tax Implications
It is always sensible to be aware of the tax implications of any investments that you make. Even though international funds invest heavily in equity, they are not classified as equity funds as per Indian norms. International funds are usually classified as debt funds in India through the fund-of-fund route and are taxed likewise.
Depending on the duration of your investment, you would either be charged an STCG (short-term capital gain) tax or an LTCG (long-term capital gain tax) on your international mutual fund.
- STCG
If you hold on to an international fund for less than 36 months, it would qualify as a short-term capital gain. And it would be taxed at your current income tax slab rate.
2., LTCG
On the other hand, if you hold on to an international fund for more than 36 months, it would qualify as a long-term capital gain. And the fund would be taxed at 20% with the benefits of indexation.
Conclusion
As an investor, if you are intrigued by the international markets and are looking for ways to invest, an international mutual fund is just ideal. It allows you to gain exposure to international markets without having to go through the technicalities or worry about the integrities. The presence of quite a few international funds allows you to invest either in sectors, themes or countries’ indexes. As is the case with any mutual fund, staying invested for a longer period of time gives you a much better chance at growing your wealth.
Ref:
- https://groww.in/p/international-mutual-funds
- https://www.etmoney.com/mutual-funds/equity/international/50
- https://groww.in/p/global-mutual-funds
- https://cleartax.in/s/global-mutual-funds
- https://www.bajajfinserv.in/investments/taxation-on-debt-mutual-funds