International Mutual Funds are funds that invest in foreign markets except for the investor’s country of residence. On the other hand, global fund invests in foreign markets as well as the investor’s country of residence. International Mutual Funds are also known as “foreign funds” and are a form of the ‘fund of funds’ strategy.
International Mutual Funds have become an attractive investment option for investors in the past few years due to the volatile local markets and an economy going through its ups and downs.
Background of International Mutual Funds in India
With the permission of Reserve Bank of India (RBI), International Mutual Funds opened up in India in 2007. Each fund is allowed to get a corpus of USD 500 mn
International Mutual Funds follow a master-feeder structure. A master-feeder structure is a three-tier structure where investors place their money in the feeder fund which then invests in the master fund. The master fund then invests the money in the market. A feeder fund is based on-shore i.e. in India, whereas, the master fund is based off-shore (in foreign geography like Luxembourg, etc).
Advantages of Foreign funds
Geographic Diversification – One country can never top the charts consistently – so even if you don’t have a chance this year, there is one, the next year. At a macroeconomic level, most countries have their economic cycle. Hence, by investing in different countries, you can experience smaller crests and troughs in your returns.
Can contribute to a Cost-Effective Portfolio -You can utilize this exposure to foreign money to meet bigger financial goals (like your child’s wedding or college education). When it comes to overall value Indian equities do not come cheap.
Portfolio Diversification -An investment portfolio has a combination of high, medium and low-risk investments. Hence, when there is a market low in the home country, the one abroad can compensate for it.
International Exposure under Expert Management -You may not have adequate knowledge about the foreign country’s economy and the industry there. Here, a qualified intermediary can assist. Therefore, you can gain exposure to the global market, even if you are not familiar with it.
Currency Fluctuation – Currency exchange rates go through highs and lows all the time
Requires Constant Vigilance on Political, social and economic aspects in different countries which can impact mutual fund performances.
Scope for better Market Returns – By capitalizing on many economies simultaneously, your portfolio can fetch higher returns. Aside from mitigating risks by diversifying, overseas investing also boost your portfolio quality.
Dual Market Risk – The other country’s current market fluctuation and the sectoral market (real estate, IT, etc.) can impact fund performance. Hence, it needs a lot of research and contemplation to make an informed choice.
Some of the popular International Funds – Past Performance
|International Mutual Funds||1 Yr Return %||3 Yr Return %||5 Yr Return %|
|Franklin India Feeder Franklin US Opportunities Fund||-0.21||16.78||13.46|
|ICICI Prudential US Bluechip Equity Fund||4.21||15.86||12.04|
|DSP US Flexible Equity Fund||-7.29||13.15||10.57|
|Motilal Oswal NASDAQ 100 Exchange Traded Fund||-3.31||17.97||16.15|
|Aditya Birla Sun Life International Equity Fund – Plan A||-3.52||12.25||7.41|
Performance as on 7th Oct. 2019