International mutual funds can pay off in terms of good returns in the long run, provided the investment strategy is right. Overseas mutual funds are the ones which make investments in foreign entities or companies. They are also called foreign investment mutual funds in some cases. These may come with higher exposure to risks although the chances of obtaining attractive returns may also be higher. Mostly, these are preferred as good long-term investment alternatives.
Diversifying the portfolio is a must for hedging returns against market risks and taping into new opportunities for earning good returns. Investing in international mutual funds will not only enable greater portfolio diversification, but will also help in lowering losses and gaining higher returns since economic market cycles vary from one country to another. Hence, investments made simultaneously in different markets can pay off in the long run.
What should you keep in mind while investing?
Mutual funds investing overseas require you to be a careful and involved investor. They are not suitable for those who are mostly passive investors since there is an element of consistent and continual tracking of markets across the world. Those investing in international mutual funds should be absolutely certain about their investment objectives across both short and long durations beforehand. The track record of various global funds should also be carefully ascertained prior to investing.
Mutual fund foreign investments usually come with specific risks linked to fluctuations in rates of currency exchange. For example, if the fund is majorly investing in the USA market, then if there is a fall in the rupee value, then you will have higher rupees for every dollar you have invested in. Similarly, if the rupee value goes up, then there will be fewer rupees available for every dollar that you have invested in. In the latter scenario, the net asset value (NAV) will come down while in the earlier scenario, it will naturally go up. At the same time, you should also keep in mind that economic and socio-political changes and decisions in several global economies may impact performance of mutual fund investments. Hence, keeping a tab on market trends is a must for investors in international mutual funds.
Should you invest?
By tapping into multiple global economies, you may garner higher returns for the long haul while diversification of the portfolio also spreads out the risks considerably. However, you should make sure that you conduct thorough research on the funds you are interested in, their performance and the returns they are providing, before signing on the dotted line. Keep in mind taxation issues as well since hybrid funds majorly invest in companies in the domestic market and the remaining portions in global markets. As a result, returns garnered from the same are mostly subject to LTCG (long term capital gains) taxes.
However, international mutual funds have historically performed well over the years as per several reports. You should select plans across markets where the stock markets are properly developed and zero in on those markets which have suitable corporate governance. Invest in countries which have solid legal systems and solid, long-term businesses.
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