International Mutual Funds: What are International Mutual Funds Explained

With globalisation, geographical boundaries have diminished, connecting people more than ever. Investors can invest in their home countries and also in companies abroad to maximise their profits. One such way to globally expand your investments is through international mutual funds.

As the name implies, international mutual funds are funds invested in companies overseas. Foreign funds are riskier than domestic investments but offer more opportunities to earn higher returns.

How do International Mutual Funds Work?

International mutual funds work like regular mutual funds. The investments are made in the Indian rupee. A fund manager invests your money in foreign companies listed on foreign exchanges. The fund manager either builds an investor’s portfolio after buying companies’ stocks or invests in a global fund. The categories of international mutual funds are as follows:

• Country funds

Country funds are foreign funds that invest in a particular country. With no need for extensive research about several countries, you can take advantage of a single country’s economy and maximise returns.

• Regional funds

Regional international funds invest in a world’s particular region like South Asia, West Asia, etc. You can select one or multiple regions based on your research.

• Global funds

Global and international funds are not similar despite having synonymous names. While global funds invest in companies over the world, including the country where you live, international funds invest globally except in your country.

• Global sector funds

Global sector funds are foreign funds that focus on specific sectors of the world, such as technology, real estate, automobiles, etc.

• International commodity funds

International commodity funds focus on specific industrial commodities or precious materials. Examples of such funds include international mineral funds or gold funds.

Advantages of International Mutual Funds

Some of the advantages of foreign funds include:

• Global market exposure: Foreign mutual funds offer global exposure allowing you to tap global markets. You can invest in countries with a booming economy if your native country is struggling with economic downfall.

• Portfolio diversification: Investors aim for portfolio diversification to minimise risks. International funds allow you to make investments in different countries, diversifying the risk over multiple industries, countries or regions.

• Professional management: Investing in overseas mutual funds is hassle-free as they are managed by professional fund managers. Even if you lack knowledge of the international market, fund managers allow you to manage your portfolio efficiently.

• Higher returns: International funds offer you the opportunity of global market ownership. You can invest in renowned global companies, such as  Apple, Amazon, Nike, etc., to earn higher returns.

Disadvantages of International Mutual Funds

Like other investments, foreign mutual funds also have their pros and cons. So, you must be aware of the following disadvantages of foreign mutual funds to make an informed decision:

• Greater risk: Foreign funds involve the risk of currency rate fluctuations which makes them riskier than domestic investments. For example, if you invest in a US company and the rupee value rises, or the dollar depreciates, the returns will be less.

• Constant tracking: International mutual funds need constant tracking of the social and political environment that impacts a country’s economy. 

Taxation on International Mutual Funds

International funds invest majorly in equity and other related instruments. However, the investment is not considered an equity fund because it is not carried out in domestic companies. So, foreign funds are treated as debt funds for taxation purposes. Thus, the rules of long-term capital gains tax and short-term capital gains tax are applied in the case of overseas funds. It is considered STCG if you redeem the international investment within three years. The returns are added to your income, and you are taxed according to the tax bracket. On the other hand, a LTCG tax is levied if you invest for more than three years.

Final word

With international mutual funds, you can invest in different countries and expand your portfolio to overseas markets. With professional management of investment, the funds offer you the chance to earn higher returns. But international mutual funds come with higher risks associated with the social, political and economic environment of different countries. So, before investing in foreign funds, you must evaluate your short-term and long-term financial aims and your risk appetite in our mutual fund app. You should also know about the expense ratio of your investment portfolio, which includes the annual payments related to the fund’s administration.

International Mutual Funds FAQs

1. Which are the best International Mutual Funds to invest in 2024?

2. How long should I stay invested in International Mutual Funds?

International funds are best for long-term goals (5+ years) to ride out market ups and downs. They can be volatile, so patience is key! Consider your investment horizon and risk tolerance when deciding how long to stay invested.

3. Where do International Mutual Funds invest?

International mutual funds are funds invested in stocks and bonds of companies that one does not reside in. This can be developed economies like the US or Japan, or emerging markets like China.

4. Are International Mutual Funds high risk?

Yes, international funds do carry risk. This might be because of currency fluctuations and the political instability in some regions in the world. Still, they can also help spread out possible risks and nurture long-term growth.

5. What kind of returns can I earn from International?

International funds offer potential for growth by tapping global markets. Returns can vary depending on the specific fund and economic conditions, so expect some ups and downs. Focus on long-term goals and consider diversification to manage risk.

6. Should I invest in International Mutual Funds?

Consider international funds if you want to diversify and potentially boost returns. They carry extra risk due to currency and foreign markets. If you have a long-term outlook and are comfortable with some risk, they could be a good fit for your portfolio.