Over the past few decades, the Indian rupee has been constantly degrading in value against the US dollar. This could result in an increase in the prices of import. However, smart investors deploy this situation in their favor by investing in foreign markets. International funds do the same. Let’s understand the basics of international mutual funds before you invest in these investment options.
What is an international fund?
International funds are those funds that invest in stocks of foreign companies. Also known as foreign funds or overseas funds, these mutual funds allow investors to diversify across location apart from just diversifying across sectors, asset classes or different types of investments. Thus, international funds permit investors to be a part of greater and more diverse investment portfolio. These mutual funds also enable investors to tap into diverse markets across the world.
Types of international fund
International funds are divided into the following types:
- Country funds –under country funds, investors invest in companies that belong to just one country, making it easier for an investor to study the markets
- Regional funds–Under these types of international funds, an investor focusses on a particular geographical location, such as Asia, Latin America, etc.
- Global funds–Under global funds, an investor invests in companies spread across the world, including their home country.
- Global sector funds – Global sector funds focus on anexplicit sector of the economy in foreign country.
Who should invest in international funds?
International mutual funds are for ideal for investors who are looking to diverse their portfolio across location and wish to expose their portfolio to foreign funds. Smart investors are aware of the fact that the economic cycles of two diverse countries might not be identical. These investors aim to benefit from this by simultaneously investing in economies of different countries. However, if you are a risk-averse investor, you might refrain from investing in international funds. Though these mutual funds have huge potential to generate significant gains, things could go upside down and it could result in substantial losses.
Benefits of investing in international funds
Following are some of the benefits of exposing your investment portfolio to international funds:
- International funds help to balance economic volatility
- These mutual funds help to diversify the portfolio across location
- International funds provide easy access of blue-chip international companies to investors
- These funds help to hedge investments
- International mutual funds provide exposure to foreign markets under the guidance of experts
Risks related to investing in international funds
There are three main risks associated with investments in overseas funds, these are:
- Political risk
- Interest rate risk
- Currency risk
Investing in international mutual funds can help you to discover new investment opportunities and capitalize on it. Now that you have a better understanding about the workings of international funds, you can decide if you wish to expose your portfolio to international funds. Don’t forget to check the tax implications on international funds before you decide to invest in them. Happy investing!
