Should you invest in International (Global) Mutual Funds?
International/Global mutual funds invest in non-domestic securities market across world. Investment in international mutual funds offers investors for opportunities to participate in the growth of the profitable markets of various countries. International mutual funds have not gained confidence till few years back. Due to fast growing economies like China, Malaysia and other low cost countries, investment in international markets has become attractive.
Should you invest in international mutual funds?
Investors have been depending on domestic markets and the domestic companies for investments. There are several sectors which are flat or underperforming in India while they are performing well in other countries. Classic example is the Information Technology (IT) sector. IT has been flat in the last 4 to 5 years in India with not much growth. However the sector has been fast growing in China and Malaysia. US economy also improved and showing good signs in this sector.
It makes sense to diversify our investments through international mutual funds which provide unique opportunities which are not available in India. Indian economy has several gaps and there are sectors where it falls short like technology, defense, commodities etc., Investors can tap such opportunities in foreign markets.
Types of international mutual funds
Basically there are 3 types of international mutual funds.
- Mutual funds that invests 65% in Indian companies and balance 35% in international markets.
- Mutual funds that invests in a single country financial markets. These mutual funds performance would also depend on the financial stability of the company.
- Mutual funds that invests in several countries financial markets.
Benefits of investing in International mutual funds
Good returns: The international mutual funds have been providing good returns over the last 2 to 3 years. Since it grabs the potential of emerging markets, there are good chances that it would provide good returns over a period of time.
Portfolio diversification: Instead of investing in domestic market and depending on investment options within India, it would be a good option to diversify 5% to 10% of your portfolio through investment in international mutual funds.
Reduce volatility: If you invest within India, there are greater chances that your portfolio would be under risk when Indian markets are under volatile market conditions. By investing in International markets, you would be reducing the volatility in your portfolio.
Risks in investing in international mutual funds
Foreign currency fluctuations: Investment in international mutual funds is prone to foreign currency fluctuations. If you have invested Rs 5,550 during Jun-2012, the investment would be USD 100. If you assume that your money has not grown in the last 10 months and still your portfolio amount is USD 100, now the value is Indian currency is Rs 5,400 (USD 100 x 54 conversion rate). Means, the currency fluctuation had a negative impact of 3% of your portfolio.
Over diversification: There is danger, if you over diversify your portfolio. In 2008, during recession, all international markets have faced the impact and the investments have fallen like anything. Several investors have lost their money. However it was able to recover to some extent in 2009. What I am saying is do not do over diversification into international mutual funds. Keep a maximum of 5% to 10% of investment in international mutual funds.
Specific country funds: Do not invest in International mutual fund which invests only in one specific country. There can be good growth story for such country; however, your investment returns would depend upon the financial stability of such country. This can put your investment under risk.
Political instability: Political instability of a country is also another major factor where the performance of international mutual funds would depend.
Top International Mutual funds are enclosed below. You can review along with the risks involved and invest in such mutual funds.
Conclusion: While you need to keep in mind about various risks involved, invest in International mutual funds to diversify your portfolio. This would be a good investment option for investors who want global exposure and want to tap the unique opportunities across the globe.
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Should we invest in International Mutual funds