International Mutual Funds: What To Buy And How Much To Allocate

By investing in international funds one gets access to international companies. This also serves as an ideal portfolio diversification strategy

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Many are asking the question, “Should one invest in international funds?” The answer is yes. Consider for a moment, India’s share in world GDP is roughly 3 per cent, this translates in to an opportunity to invest in the remaining 97 per cent of the world.

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Since 2016, the tech-heavy NASDAQ has surged 231 per cent whereas India’s NIFTY 50 recorded gains of 104 per cent in the same period. If the investor had invested in international ETFs or international funds, his returns would have outpaced that of NIFTY 50.

 

By investing in international funds one gets access to international companies. This also serves as an ideal portfolio diversification strategy. Another reason to invest in international funds is that developed markets do not fall as viciously as emerging markets. Thus, the portfolio of international funds can provide cushion against volatility.

 

While investing in international funds one must consider geography, sector or commodities. For example, for someone investing in India, it doesn’t make sense to invest in emerging markets. The returns could be more or less similar. In the same way, funds focused on commodities might experience higher volatility than the one investing in technology.

 

One can even invest in fund of funds. The fund of funds collects money from domestic investors and invests in the fund of the same company. Since the management of funds is done from India, it is better to invest in the fund of funds.

 

The asset allocation strategy depends upon the risk profile of the investor. If the investor can afford to take risk and if he wants to invest for longer duration, he can invest 10 per cent of his corpus in a staggered manner. By investing in international fund, an investor can benefit from currency movement too. Any appreciation in US Dollar will translate into additional gains.

 

Are there any risks involved while investing in international funds? Well, sometimes emerging markets outperform developed markets. During such periods, one may experience stagnant growth, but eventually markets catch-up. Similar to domestic funds, one must closely monitor the performance of international funds and the fund‘s objectives.

 

To conclude, international funds come in variety of shapes and sizes. It requires some expertise to analyze international events and its impact on various markets. It is advisable to consult the financial advisor before investing in international funds.