The Buyt Desk
Global or International Funds bring geographical diversification to your portfolio. The markets outside India such as the United States, European or Asian markets have their own dynamics. They are not co-related to Indian indices and thus have their own performance matrix. At times when the Indian market fails to do well, a fund tracking an outside index will balance your portfolio. An international fund brings diversification to your portfolio. You can invest in an international fund in a similar manner the way you invest in Indian mutual funds. You don’t need a Demat account as you buy these funds through the asset management companies ( AMC) of India.
Why International Funds?
International funds are those mutual funds (MFs) that invest in foreign funds. International funds are a good option of diversification through which an investor can reduce the risk in his portfolio. It has happened many times that the condition of India’s economy was poor, but in comparison to this, a big economy like America was in a better position. For example, when the Sensex fell by 21% in the tech bubble burst of 2000, the Dow Jones of America had fallen by only 6%.
How much to invest in an International Fund?
Up to 15-20% of your portfolio can comprise International Funds. There are two types of International funds – actively managed and passively managed funds. The passive funds track indexes such as NASDAQ and Hang Seng. Motilal Oswal Nasdaq 100 FOF and Kotak Nasdaq-100 are passive funds. Active funds are those which are being managed and looked after by the fund manager of mutual fund houses who conduct deep research and formulate funds based on bluechip companies or technology companies such as Facebook, Amazon, Apple, Google (FAANG).
How to choose International Funds?
Do not invest only on the basis of past returns. Look at the policies of the country where the fund is investing. Do look at the kind of sector where the fund invests. New businesses like cloud computing, driverless cars, artificial intelligence are sectors that you don’t find in India. By choosing new themes of investment you further diversify your portfolio. International funds give your portfolio exposure to foreign companies and you can invest in new themes and sectors of the external economy. Compare the Dollar-Rupee co-relation. Historically they have an inverse relationship and that gives you the currency benefit.
Tax Liability on International Funds
Investors on international funds have to pay the same tax as in debt mutual funds. Short term capital gains tax is payable on investments held for less than three years. But, investments for more than three years get the benefit of indexation and attract long term capital gains tax at the rate of 20%.
