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.
Also read: Top Mutual funds to invest in large cap segment
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.
You may also like: Should you opt for capital protection funds?
Top International Mutual funds are enclosed below. You can review along with the risks involved and invest in such mutual funds.
Invest in these top mutual funds thru Fundsindia.com now
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
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I would like to know which global MF to invest with HDFC Securities? or HDFC Bank MF?
I am looking for short term with good returns. I would like to have them completely managed by MF manager…
Amit, My advice is not to invest in global funds for short term. You should atleast look for 3 to 5 years timeframe to invest in such funds. Consider top funds indicated here if you want to invest them
My mutual fund portfolio consist of the following funds, please advise if I need to add or switch some funds:
HDFC Top 200, DSP100, Franklin Blue chip, ICICI Pru Foc Bluechip, IDFC Premier Equity, ICICI Discovery,Reliance Gold, Canara Robeaco Tax.
My portfolio is missing a Multicap, Diversified & International fund please suggest what I need to add and what has to go out. My investment is for long term 10 years and more.
Wilfred, You have selected good funds. However DSP 100 is an underperformer. Crisil rated this MF as Rank-3. You may choose better options. If you are looking for international funds, you can opt for Motilal Most NASDAQ 100 fund. Regd diverisifed fund, you can invest in Reliance equity opps or Birla SL India genext
Very knowledgable stuff. I have a query on this. Could you please tell me which fund would be best to invest out of the above you have mentioned? JPMorgan ASEAN looks to be giving good returns and also it covers whole of south east asian market which is really a boom these days. On the other hand, ING Global Real Estate Fund is also giving impressive results but the limitation of this fund is that it is real estate sector specific fund and I guess globally there is a bit of downfall in real estate.
So my question is that which fund would you advise to invest out of above? I would invest in SIP of INR 1000 pm. My existing portfolio of MF is as follows:
Birla Sunlife Gen Next- INR 1000pm
SBI Pharma Fund- INR 500pm
SBI FMCG- INR 500pm
SBI Emerging Business- INR 1000pm
Reliance Equity Opportunities Fund- INR 1000pm
UTI Opportunity Fund- INR 1000pm
Axis Long Term Equity Fund (ELSS)- INR 1000pm
Please help me advise if I should look at JPMorgan which is fairly a new fund or ING Global real estate fund which is sector specific or would you advise some other fund? I would go with any one fund for 1000 pm SIP!
Thanks in advance
Zubin, your portfolio is fine. Regd which Global fund to buy, I have indicated top global funds. You can consider based on your risk apetite. Instead of investing in a sector based real estate fund, investment in asian companies fund like JPM would reduce your risk.
Thank you for writing back. It makes sense to invest in diversified international fund. I need your advise between JPMorgan ASEAN and Birla Sunlife International Equity. Could you please tell me which is a better fund out of the two? JPMorgan is fairly a new fund. Dont you think that it would be too early to comment if we should invest in this fund although it has given good returns in last 1 and half year as compared to Birla Sunlife which has been giving consistent returns since a long time. What is your take on this?
Zubin, International funds have gained importants very recently. Hence investors are investing them slowly into such funds. JPM Equity fund though started 1+ years back, it could able to attract investors and have a AUM of Rs 248 crores compared to other intl fund schemes which are lower than 65 crores. Each of every scheme has its own plus and minus. e.g. Motilal invests only in NASDAQ 100. Means if you think US economy is going to boom, you would get benefitted with this fund. Same way with ING Real estate fund which invests in real estate across major countries. If I am in your place, I would reduce my risk in a fund which invests in single sector(thought it is globally) like real estate and invest major amounts in remaining 4 funds.