Are you someone who’s always on the lookout for ways to improve your investment returns and reduce risks? You’re not alone. The idea of investing beyond borders is gaining traction among Indian investors, and for a good reason. International mutual funds, which invest in assets across the globe, offer a unique way to tap into emerging opportunities while balancing the risks associated with a home-country portfolio. In today’s interconnected world, market dynamics vary greatly from country to country, which means the right global exposure could help you ride out the ebbs and flows of the Indian stock market. But how exactly can you make the most of these funds? Here is why diversifying your portfolio with international mutual funds could be a game-changer, and how it allows you to step into new realms of wealth creation: Access to Global Market Leaders One of the biggest advantages of investing in international mutual funds is gaining exposure to some of the world’s leading companies. Think about the tech giants like Apple, Microsoft, and Tesla, or consumer brands like Nestlé and Procter & Gamble. These global players often have diversified revenue streams across different countries, which helps them weather local economic downturns better than smaller, region-specific companies. By investing in international mutual funds, you are essentially buying into these powerhouse businesses without directly owning individual stocks. In fact, a 2022 survey by Morningstar revealed that Indian investors who diversified globally saw better long-term returns than those solely focusing on domestic markets. International mutual funds offer you a chance to own a piece of the global economy and benefit from its growth trajectory. Read More: 10 Benefits of International Mutual Funds for Indian Investors Geographic Diversification Reduces Risk Markets fluctuate. While one country’s stock market may be booming, another could be going through a recession. Investing solely in Indian stocks can expose your portfolio to country-specific risks, like regulatory changes, inflation, or economic slowdowns. International mutual funds help mitigate this by spreading your investments across various countries. For example, if the Indian market underperforms due to local factors, your holdings in the U.S., Europe, or other emerging markets might still deliver good returns, balancing out the overall portfolio performance. This form of geographic diversification provides a cushion against market volatility, giving you a more stable and predictable growth pattern over time. Take Advantage of Currency Fluctuations One less obvious benefit of international mutual funds is the opportunity to profit from currency fluctuations. Since these funds invest in assets denominated in foreign currencies like the U.S. dollar or the euro, the performance of your investment is also influenced by the exchange rate between the Indian rupee and these currencies. If the rupee depreciates against the dollar, for example, the value of your international investments increases in rupee terms. A report from the Reserve Bank of India in 2023 highlighted how, over the past decade, the rupee has generally depreciated against the U.S. dollar by an average of 3-4% annually. This means that even if your international assets grow modestly, currency fluctuations could boost your returns in India. Access to Sectors Unavailable in India While the Indian stock market is diverse, it doesn’t provide significant exposure to certain high-growth industries like biotechnology, electric vehicles, or aerospace. These sectors are flourishing in countries like the U.S., Germany, and Japan, and have shown tremendous potential for long-term growth. By investing in international mutual funds, you can access these high-growth sectors that aren’t readily available in the Indian market. For instance, the global electric vehicle market, dominated by Tesla, grew by over 40% in 2023. Indian investors who had exposure to international mutual funds with holdings in such companies benefited significantly, even as the Indian auto sector faced challenges. This allows you to capture innovative trends and diversify your portfolio across industries that could define the future. Enhanced Portfolio Stability with Different Economic Cycles Each country’s economy operates in its own cycle. While some economies are booming, others may be experiencing slowdowns or recessions. By investing in international mutual funds, you can balance these economic cycles within your portfolio. For example, during the COVID-19 pandemic, while India experienced a severe economic downturn, certain global markets, particularly in North America, rebounded faster, driven by tech innovations and stimulus measures. This diversification across economic cycles adds a layer of stability to your investments. The mix of different growth stages in global economies helps reduce the likelihood of all your investments falling simultaneously, ensuring a smoother growth trajectory for your portfolio over the long run. Read More: Thinking of Investing in International Markets? Here’s What You Need to Know First Regulation-Protected and Professionally Managed Some investors hesitate to invest internationally because of unfamiliarity with foreign markets or concerns about regulatory oversight. However, international mutual funds are regulated by SEBI (Securities and Exchange Board of India) and offer the same level of investor protection as domestic funds. This means you can invest with confidence, knowing that these funds are professionally managed by experts who have deep knowledge of foreign markets. Take the case of Ajay, a 40-year-old investor from Mumbai. He was initially skeptical about putting his money in international mutual funds, worried about the risks and complexities of foreign markets. However, after consulting with a financial advisor and understanding how SEBI regulations and fund managers would mitigate these risks, Ajay diversified his portfolio into U.S.-focused mutual funds. Over the next five years, while his domestic investments yielded modest returns, his international funds outperformed significantly due to the rising value of tech stocks and favorable currency movements. Potential for Higher Long-Term Returns While international mutual funds can provide a layer of stability, they are also known for offering higher long-term returns, especially when investing in rapidly growing economies like China or Southeast Asia. As these regions continue to develop, the businesses there could deliver above-average growth, providing robust returns to investors. A 2023 report by CRISIL showed that international mutual funds with exposure to Asian markets delivered an annualized return of around 12%, compared to 8% for Indian equity funds over the same period. By including international mutual funds in your portfolio, you can aim for higher long-term returns without taking on excessive risk. Tax Efficiency Through the Right Strategy Lastly, understanding the tax implications of international mutual funds is crucial for maximizing your returns. These funds are treated as debt funds in India, which means gains are taxed according to debt fund taxation rules—20% with indexation if held for over three years. While this might seem like a disadvantage compared to equity taxation, the benefits of diversification, currency gains, and sectoral exposure often outweigh the tax implications in the long run. Moreover, by aligning your investments with your financial goals and holding periods, you can optimize your tax liabilities while still gaining from the international exposure these funds offer. Frequently Asked Questions [FAQs]: 1. Can Indians invest in foreign mutual funds? Yes, Indians can invest in foreign mutual funds through international mutual fund schemes offered by Indian fund houses, which invest in global markets. 2. Which Indian MF is investing in the US? Indian mutual funds like ICICI Prudential US Bluechip Equity Fund and Motilal Oswal S&P 500 Index Fund invest in U.S. stocks. 3. Can we do SIP in US stocks? Yes, Indians can invest in U.S. stocks via SIPs through international mutual funds or platforms that allow fractional stock investing in U.S. markets. 4. Is it a good time to invest in international funds? Investing in international funds can be beneficial for portfolio diversification, but it depends on global market conditions, currency fluctuations, and personal financial goals. 5. What is the limit of international mutual funds? Indian individuals can invest up to $250,000 per financial year in international assets, including mutual funds, under the Liberalized Remittance Scheme (LRS) set by the Reserve Bank of India (RBI). Final Thoughts International mutual funds are more than just a way to diversify your portfolio—they’re a strategic gateway to global opportunities that can potentially boost your returns while mitigating risks. Whether you’re seeking exposure to sectors unavailable in India, benefiting from currency fluctuations, or balancing economic cycles across different countries, these funds provide a robust solution for investors looking to grow their wealth. These tips are brought to you by HappyWise Financial Services. If you need any assistance with organizing your finances or want to discuss your investment options, feel free to connect through Email or Whatsapp. Disclaimer: Some part/s may be generated/modified using GenerativeAI Post navigation 10 Key Benefits of Gold ETFs You Should Know How to Make Passive Income from Peer-to-Peer Lending
