From the brands of clothing you use to the cuisines you eat at restaurants, everything is increasingly turning you into a global citizen. So, why should your investment portfolio be any different? You can benefit greatly by adding international exposure to your mutual fund portfolio through international funds. International funds are mutual funds that invest in securities listed and issued in countries other than India. An international fund can add immense value to your portfolio. Let’s see how that is.
- Added layer of diversification
When you invest in an international fund, you are adding an additional layer of diversification to your portfolio. Historically, the domestic Indian market is not perfectly correlated with markets of other countries such as the US. That is because the economies and market cycles of different countries do not move in tandem with each other. So, at any given point, the performance of one country’s market may outperform or underperform that of the Indian market. Hence, at times when the Indian market is down, the returns from international investments can make up for it and the overall portfolio returns can remain stable.
- Access to high-performing sectors
Investing in international mutual funds can give you access to high-performing sectors in different countries. For instance, all the biggest tech companies in the world, from Meta to Amazon, are listed on the US stock market. So, to benefit from the technology sector, investing in the US tech stocks through international funds is a good opportunity.
Similarly, certain other markets might present specific growth opportunities that may not currently exist in India. Hence, investing in international mutual funds can set up your portfolio for potentially high returns.
- Convenience and ease
Like with all other mutual funds, international funds have an expert fund manager who makes all the strategic investment decisions. These include decisions regarding what securities to invest in, when to buy, when to sell, etc.
Knowledge of geopolitics, international laws, and country-specific consumption patterns and policies is essential when making international investments. However, when you invest through international mutual funds, you don’t have to worry about this since the fund manager is the one who will take care of all of that.
How much to invest in international funds?
According to experts, investors should limit their international exposure to 15%-20%. Whether you should invest 5% or 20% of your portfolio in international funds will ultimately depend on what your risk tolerance is and what your financial goals are.
One thing to keep in mind when deciding how much to invest in international funds is that they are not as high risk as other international investments such as direct investments in stocks of companies listed in foreign markets or cryptocurrencies. Since you are investing through a mutual fund of an Indian Asset Management Company (AMC), the risk of investment is lower. You can choose to add international funds to your mutual fund portfolio either through direct investments with the AMC or through brokers and agents.