In today’s world, financial markets are more connected than ever, opening up many investment opportunities for investors looking to diversify their portfolios. If you also want to seek exposure to various global economies, international mutual funds could serve as a valuable asset to step up your portfolio.
International mutual funds work like regular mutual funds investment and invest in assets like stocks, bonds, commodities, and other funds available in a foreign country. The fund manager then builds an investor’s portfolio by buying shares of companies listed on foreign exchanges.
These funds can help you capitalise on the growth of foreign economies and companies through a single fund, but they also carry risks such as market fluctuations, volatility, and the potential to lose value. Thus, the key is to make the right investment with thorough analysis and careful research to minimise risk and maximise returns. On that note, read on to learn the critical parameters to consider while selecting an international mutual fund.
There are several different types of international mutual funds available, each with different risk profiles, objectives, strategies, and benefits.
For example, global funds offer exposure to stocks from around the world, while global sector funds allow investors to gain exposure to specific sectors or industries such as real estate, automobiles, technology, etc. Regional international funds invest in a particular region, like West Asia and South Asia, while country funds invest in a specific country.
Carefully consider each fund’s strategy, risk profile, past performance, benchmark, as well as other key parameters before allocating your capital.
Look at funds that are diversified across sectors and stocks rather than just investing in one large company or sector. This way, your portfolio will be more resilient against volatility and downturns in individual markets or sectors within an economy.
Additionally, the international investment must not be correlated with the Indian market. Otherwise, it may not provide sufficient diversification benefits. You can assess a fund’s correlation by looking at its performance relative to other global asset classes over time. This can give you valuable insight into how the fund has performed during various economic conditions throughout its history.
Check the reputation of the asset management company (AMC) managing the fund and their consistency. For example, if a particular AMC has consistently delivered good results over several years, it would indicate that they are likely to continue performing well in the future. Additionally, compare the returns offered by different international mutual fund schemes over various time frames such as 1 year, 3 years and 5 years for a more in-depth analysis.
International mutual funds tend to charge higher expense ratios due to the higher operational costs associated with investing abroad. The expense ratio includes expenses such as administrative costs and other charges related to running the scheme. Look for funds that charge lower expense ratios. This indicates that more of your hard-earned money will be going toward potential returns instead of administrative costs.
As with all investments, international mutual funds also come with certain risks. Currency fluctuations, political instability, and economic instability are some factors that can impact the performance of these funds. As such, you should commit to these funds with an investment horizon of a minimum of 5 to 7 years. By remaining patient and maintaining this extended investment timeline, you can mitigate the potential impact of these risks on your overall portfolio and earn substantial returns from these diverse funds.
With diversification, access to high-growth international opportunities, and hedge against a depreciating rupee as its key features, international mutual funds can be a beneficial addition to your portfolio. To eliminate market timing risks and stay disciplined in your approach, you can also consider opting for a systematic investment plan (SIP) for these funds. Moreover, consulting a financial advisor can further help you choose the right assets for your portfolio and simplify your journey toward financial growth and security.