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International funds provide exposure to overseas stocks or indices without having to open international bank or brokerage accounts. They offer benefits of country risk diversification, exposure to global themes and hedge against Rupee depreciation making suitable for goals which require foreign currency spending.
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Think of the global brands like Amazon, Google, Meta (Facebook), Apple, Netflix, Microsoft, etc that we use in our daily lives. You use Amazon for online shopping, Google for search, Facebook for communicating, Netflix for watching movies, Microsoft for work etc. These companies are deeply engraved in our lifestyles but do we ever think of owning these companies. Apart from the huge influence these companies have on lives of people all over the world, they have also been great wealth creators for investors.
An international fund allows Indian investors to diversify their portfolios by investing in foreign stocks from regions like the US, Europe, or Asia, thereby giving them a global exposure and at the same time mitigating the risk of concentrating their investments solely in the Indian market. However, these international mutual funds are not devoid of challenges; currency risk and political shifts in foreign nations can impact investments. Furthermore, it’s essential to consider macroeconomic influences, sectoral impacts, and the advantage of tapping into multiple economies when investing in an international fund.
There are around 70 international mutual funds in India, schemes investing primarily in international stocks. There are different structures of such schemes like fund-of-funds, actively managed funds, exchange traded funds (ETFs) and index funds. These schemes focus on specific countries, sectors, or themes. When investing, it’s crucial to understand your objectives, decide the type of fund that aligns with your goals, and possibly consult an investment advisor due to the complex nature of this investment segment.
Starting from April 2023, certain tax implications apply to the capital gains from these funds. Notably, gains from funds investing less than 35% in Indian equities will be taxed based on an individual's slab rate. However, there's no taxation on accrued returns, optimizing the compounding effect in debt funds.
Indian investors can broaden their portfolios by allocating funds to international investments targeting companies in regions such as the United States, Europe, and Asia. This approach offers a safeguard against concentrating investments in a single market. Additionally, it provides the opportunity to capitalize on the growth of overseas economies that might not necessarily mirror India's economic path. However, these international mutual funds do come with their set of challenges. Currency risk is a primary concern; investing in an international fund means investing in foreign currencies. A dip in the foreign currency's value can adversely impact your investment. Moreover, geo-political shifts can affect trade, foreign investments etc. in certain geographies affecting the companies the fund invests in. While international mutual funds can be beneficial for those seeking portfolio diversification and tapping into foreign economies' growth, they might not be for everyone. You should have some understanding of the market, sector, theme etc. and the risk factors thereof. Also, you should not invest in international mutual funds in India simply to benefit from INR depreciation. There is ample research which shows that equity risks are far greater than currency risk in most developed or emerging markets. You should understand the risks and make informed investment decisions. Types of International Funds There are many different variations that are possible. For example, the structure of the international mutual funds in India can be passively managed through an index fund or an ETF following an international index, or it can be actively managed international fund, where the fund manager picks stocks in order to outperform the benchmark index. There can also be a fund of fund structure (FOF); as Indians, we are investing in a fund, and that fund is investing in a global fund or funds thatmay be actively or passively managed.
Advantages of International Funds
Factors to consider when investing in International Mutual Funds in India It’s crucial to consider the following factors when investing in International Mutual Funds in India:
Taxation on International Mutual Fund Starting from April 1, 2023, the capital gains made on international fundsthat invest less than 35 per cent in Indian equities — will be added to your income and taxed at the slab rate applicable to you.The benefit of investing in international mutual funds is also there from the accrual of dividends;there is no taxation on accrued returns, thereby you can benefit from the compounding effect in debt funds.
The process of investing in International mutual Funds is like investing in regular Mutual Funds. You need to first get your KYC done. Followed by deciding on the purpose of choosing the fund. This will allow you to decide on which type of fund to invest, should it have a tilt towards a particular sector, country, or investment style. Then you can check for what structure of funds are available given your needs --- Fund of Fund, Passive, or Active. Consult an investment advisor or a mutual fund distributor if you need help in investing in best international mutual funds in Indiaas thisis not a simple segment to invest in.
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Mutual fund investments are subject to market risks, read all scheme related documents carefully. © DSPAM 2024.
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