Things to Know Before Investing in International Funds

Wondering if you can diversify your mutual fund portfolio outside of India? Yes, you can! International funds, also called global funds, offer a lucrative investment window into international stocks. Through this equity-linked instrument, you can invest in any international company located anywhere other than your country of residence.

Since June 2021, you can choose from almost 50 global funds. This number was half last year. With more options of international funds to invest in, you can calibrate your global fund portfolio for better returns and mitigated risks.

Tempted to invest in international funds already? Wait! Consider the following things before you start:

1. Assess the risk

Certain international funds have indeed performed phenomenally in the last 5 to 10 years by awarding a return upwards of 20% to their investors. But, there were also few cases of languishing returns on specific funds.

Therefore, assessing the risks associated with global funds is critical. The best way to figure out the performance of an international fund is by studying its track record or historical performance for at least 5 years. If you cannot choose a fund even after studying its track record, hiring a financial advisor is ideal.

Additional Read – Investing in International Funds for Portfolio Diversification

2. Go for a long-investment horizon

Experts noticed a long-investment horizon, meaning investors who held on to their funds for a long duration experienced significant capital appreciation.

By long duration, we mean 7 to 10 years. So, until a fund's track record shows significant returns in the short term, we recommend investing in this instrument for at least a few years. 

3. Check the fund’s expense ratio

A fund's expense ratio is somewhat like that fund's maintenance charge. It's a percentage charged from investors for administrative management of the fund. The higher the expense ratio, the bigger the cut you must pay on your return.

So, while booking an international fund, quickly glance at its expense ratio to see whether it justifies the fund's performance. Otherwise, go for a global fund with a low expense ratio, as the money saved will only boost your long-term capital appreciation.

4. Check if the fund is diversified

International funds may be only one type of equity mutual funds, but this category can invest in diverse asset classes like stocks, bonds, real estate, gold, etc. The more diversified a fund, the lower your risk exposure.

Therefore, before investing, check how diversified the international fund is. You can do so by conducting a search online or by asking a financial expert.

Additional Read – Looking for a reliable way to get exposure to stocks overseas? International funds are the answer

The bottom line

In addition to these 4 things, you must also figure out if the global fund is owned and managed by a reputed fund house or asset management company.

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