Investment Vehicles Abroad: Definition, Classifications, and Benefits
Investing in international funds through a platform is a straightforward process, with the option to start with a Systematic Investment Plan (SIP) of as low as Rs. 500. Before diving in, it's essential to consider the geographical location where the fund primarily invests and the scheme's chosen benchmark.
Geographical Diversification
International mutual funds are thematic funds that primarily invest in equity and equity-linked assets of foreign companies. When choosing an international fund, you should consider the geographical location where the fund invests. Options range from global markets, which aim for diversification, to country-specific funds like those focusing on the US, China, or emerging markets.
Expense Ratio and Taxation
International funds charge an expense ratio, which is a fee to cover administrative and operating expenses. Returns from international funds are taxed the way debt funds are taxed, with capital gains being taxed based on how long the investment was held.
Economic and Political Risks
Investing in international funds can be affected by political unrest or economic turmoil in the countries where the fund invests. It's crucial to be aware of these risks and consider them before making an investment decision.
Categories of International Funds
International funds are classified into three categories: Thematic International Funds, Region or Country-Specific Funds, and Global Markets. Thematic funds invest in foreign companies that belong to a particular theme, while region-specific funds focus on the stock markets of a specific region or country. Global markets invest globally, aiming for diversification.
Advantages of Investing in International Funds
Investing in international funds offers several advantages, including geographical diversification, the opportunity to become owners of global market leaders, and currency diversification. These funds are advisable for investors who already have a well-diversified portfolio of Indian companies, investors looking to invest in global market leaders, investors looking to leverage opportunities in different markets, and investors with a long-term horizon.
Choosing the Right International Fund
When choosing an international fund, it's best to invest in funds with a diversified portfolio instead of thematic schemes. It's also important to focus on the consistency of returns offered by the scheme as well as the performance of the international fund versus its chosen benchmark.
Top Performing International Mutual Funds in India
As of mid-2025, the top performing international mutual funds in India include:
- Mirae Asset NYSE FANG+ ETF FoF with a 3-year CAGR of 53.15% and AUM of ₹1,983 crore.
- Edelweiss US Technology Equity FoF with a 3-year CAGR of 29.22% and AUM of ₹3,041 crore.
- Kotak NASDAQ 100 FoF with a 3-year CAGR of 26.00% and AUM of ₹3,344 crore.
- Motilal Oswal Nasdaq 100 FoF with a 3-year CAGR of 25.99% and AUM of ₹5,388 crore.
- Navi US Nasdaq 100 FoF with a 3-year CAGR of 25.73% and AUM of ₹1,026 crore.
These funds focus on international equities, particularly technology and US market indices like NASDAQ 100 and NYSE FANG+, providing strong returns through global diversification. Their performance notably outpaces typical domestic mutual funds in India, reflecting both sectoral and geographic diversification benefits.
Currency Risk
The value of investments in international funds can be affected by changes in the exchange rate between the fund's currency and the Indian rupee. It's essential to be aware of this risk and consider it when making an investment decision.
In conclusion, investing in international funds can be a valuable addition to your investment portfolio, offering geographical diversification, strong returns, and the opportunity to invest in global market leaders. However, it's crucial to understand the risks involved, the investment strategies of the funds, and to choose funds that align with your investment goals and risk tolerance.
- To minimize currency risk when investing in international funds, it's important to research the fund's hedging strategy against exchange rate fluctuations between the fund's currency and the Indian rupee.
- For those who prefer a digital approach to investing, an investment app can provide easy access to a wide range of international mutual funds, including both debt and equity funds.
- Past performance is not indicative of future results, but monitoring the performance of top-performing international mutual funds in India can help optimize your investing decisions in the global market.
