In today’s globalised economy, investors are no longer confined to their home country’s financial markets. With increasing awareness and accessibility, more Indian investors are now exploring opportunities beyond domestic borders. One such avenue gaining popularity is investing in an international Mutual Fund. These funds provide exposure to foreign markets, allowing investors to diversify their portfolios and capitalise on global growth opportunities. In this blog, we’ll guide you through the process of starting to invest in overseas Mutual Funds from India, explain the benefits, and help you understand the important considerations involved.
What Is an International Mutual Fund?
An international Mutual Fund is a type of fund that invests in equity, debt, or other securities of companies located outside India. These funds enable Indian investors to benefit from the economic growth, innovation, and market dynamics of other countries without the need to open an overseas trading account.
It’s important to note that international Mutual Funds differ from Global Funds in terms of scope. While both invest in foreign assets, Global Funds may include Indian investments as part of their portfolio, whereas overseas Mutual Funds strictly invest outside the home country.
Why Consider Investing in Overseas Mutual Funds?
1. Geographical Diversification
Investing in an overseas Mutual Fund provides access to international markets, helping diversify your portfolio. This reduces the overall risk, as your investments are not solely dependent on the Indian economy.
2. Access to Global Leaders
International markets are home to some of the world’s most influential and innovative companies. Through Global Funds, you can invest in firms leading in sectors such as technology, healthcare, and energy, which might not be listed on Indian exchanges.
3. Currency Advantage
Investments in international Mutual Funds are typically denominated in foreign currencies. Over the long term, if the Indian Rupee depreciates against the foreign currency, the returns on these funds could be positively impacted.
4. Hedge Against Domestic Volatility
When Indian markets experience volatility due to political or economic changes, overseas Mutual Funds may help protect your wealth. These funds often perform independently of domestic market movements.
How to Start Investing in Global Funds from India
1. Understand Your Financial Goals
Before you invest, assess your financial objectives. Are you looking to build wealth, save for your child’s education abroad, or simply diversify your investments? Knowing your goal helps you choose the right kind of international Mutual Fund, whether equity-oriented, debt-focused, or thematic.
2. Know the Types of International Mutual Funds
There are different categories of overseas Mutual Funds available in India:
- Country-specific Funds: These invest in companies located in a particular country (e.g., the US, Japan, Germany).
- Region-specific Funds: These target specific regions, such as the Asia-Pacific, Europe, or emerging markets.
- Global Funds: These invest across multiple countries, including the investor’s home country.
- Thematic Funds: These focus on global themes such as artificial intelligence, renewable energy, or healthcare innovation.
Each fund type carries different levels of risk and potential return. Understanding these differences will help you make an informed choice.
3. Check the Investment Route
Many international Mutual Funds in India operate as Fund of Funds (FoFs). These FoFs invest in an existing foreign mutual fund. When you invest in such a fund, you are indirectly gaining exposure to global markets through a locally managed vehicle.
Alternatively, some Global Funds may invest directly in foreign equities or bonds. Both routes are valid, and the choice depends on your risk appetite and desired exposure.
4. Evaluate the Risks
While international Mutual Funds offer great opportunities, they also come with certain risks:
- Currency Risk: Exchange rate fluctuations may impact your returns.
- Geopolitical Risk: Political instability in foreign nations can affect fund performance.
- Market Regulations: Every country has its own set of regulations that can impact the operations of underlying securities.
Being aware of these risks is key to managing expectations and making wise investment decisions.
Tax Implications in India
Taxation on returns from overseas Mutual Funds differs from domestic equity funds. These funds are classified as non-equity funds for tax purposes in India. As a result:
- Short-term capital gains (if held for less than three years) are taxed as per your income tax slab.
- Long-term capital gains (if held for more than three years) are taxed at 20% with indexation benefits.
Understanding the tax implications before investing in international Mutual Funds is essential to avoid surprises during tax filing season.
Best Practices When Investing in Overseas Mutual Funds
1. Start Small
If you’re new to international investing, it’s advisable to start with a small allocation. Gradually increase your exposure as you become more comfortable with global market trends.
2. Monitor Performance Regularly
While investing for the long term is encouraged, it is equally important to monitor your Global Funds on a periodic basis. Keep track of fund performance, changes in the portfolio composition, and the economic health of the target countries.
3. Stay Informed
Stay informed about global economic indicators, including GDP growth, inflation, interest rates, and international conflicts. These factors often influence the performance of overseas Mutual Funds.
4. Seek Professional Guidance
If you’re unsure about choosing the right international Mutual Fund, consult a certified financial advisor. An expert can guide you based on your risk tolerance, time horizon, and financial goals.
How Much Should You Allocate?
There is no fixed rule, but financial planners often suggest allocating 10% to 20% of your portfolio to international Mutual Funds, depending on your risk appetite. This allocation ensures that you reap the benefits of global diversification while maintaining a strong domestic core.
Conclusion
Investing in an international Mutual Fund from India is no longer a complex process. With simplified access and a growing number of options, Indian investors now have the means to participate in global growth stories. However, it’s crucial to approach these investments with awareness and a strategic approach. Evaluate your goals, understand the risks, and allocate smartly.
With the right blend of overseas Mutual Funds and domestic investments, you can build a robust and diversified portfolio. So, if you’re looking to expand your investment horizon beyond India’s borders, Global Funds may be the right step forward.
