One of the advantages of global investing that isn’t highlighted enough is the fact that investors can benefit from the depreciating value of the Indian Rupee (INR).
Investors are gradually realising that they do not have to limit their investments to the domestic market in an increasingly globalised world. Investing in international markets help investors to gain exposure to global growth stories while diversifying their portfolios.
In addition to these benefits, Indian markets have a lower correlation with international markets. As per Mirae AMC, Indian markets have a low correlation of 0.16 percent with the US, 0.32 percent with Europe, and 0.38 percent with China.
According to Gopal Kavalireddi, head of research at FYERS, this low correlation helps in bringing down the overall portfolio risk of investors.
One of the advantages of global investing that isn’t highlighted enough, according to Kavalireddi, is the fact that investors can benefit from the depreciating value of the Indian Rupee (INR).
“Historically, the US dollar has consistently gained value against the rupee. 10 years ago, the Indian rupee was valued at 45 to the US dollar, and currently, it is hovering at 73 rupees to the dollar, 62 percent higher.”
Additionally, international mutual funds offer an exciting opportunity to participate in new-age business ideas and themes without being prohibitively expensive in terms of costs, or capital size, said Kavalireddi.
How international MFs work?
These MFs invest mainly in the equity and related instruments, including debt securities of companies listed outside India.
As per Kavalireddi, many AMCs offer international and global mutual funds or Fund of Funds which invest in overseas companies and businesses, spread across geographies – US, Europe, Japan, Brazil, China, Russia, to name a few.
A Fund of Funds (FoF) is a mutual fund scheme that invests in other prevailing mutual fund schemes.
“Also, with global influence on commodities’ prices, investors can take advantage of opportunities in crude, gold, energy, mining, agriculture and other industries,” Kavalireddi added.
What are some of the international MFs with good AUM?
Some of the international MFs with good Assets Under Management (AUM), according to Kavalireddi, are Franklin US Opportunities Fund (Rs 3,162.97 crore), Motilal Oswal Nasdaq 100 FOF (Rs 2,601.65 crore), Edelweiss Greater China Equity Off-shore Fund (Rs 1,630.24 crore), Axis Global Innovation FoF (Rs 1,625.83 crore), ICICI Pru US Bluechip Equity Fund (Rs 1,515.99 crore), Motilal Oswal S&P 500 Index Fund (Rs 1,384.62 crore), PGIM India Global Equity Opp Fund (Rs.1,068.86 crore).
What are the things to keep in mind while investing in these funds?
While investing in international mutual funds, there are certain things that individuals should keep in mind. Here are some of them:
Choosing asset allocation over high returns
According to Prateek Mehta, co-founder and CBO at Scripbox, investors should not get swayed by high returns of international equity funds from the past as it is likely to ‘normalise’ over the long run.
For example, Mehta points out that Nifty 50 delivered a stellar performance in the calendar year 2020, mirroring global equity markets, following a fall of nearly 40 percent in February-March 2020. However, he adds that the decade before that it was the other way around.
“Point being, markets will continue to vary. Instead, one should focus on asset allocation and the need for portfolio diversification,” Mehta suggests.
Considering tax liability
International mutual funds are given the same tax treatment as a debt fund. So, if investors hold on to these funds for three years, they can get indexation benefits while the net capital gains are taxed at 20 percent.
According to Mehta, this makes these funds a costlier proposition as against regular equity funds that are taxed at 10 percent if capital gains exceed Rs one lakh in a financial year.
Avoiding over-diversification across geographies
Mehta states that the economy is exposed to demand and political risks. These risks are higher for smaller economies and those having a higher share of their GDP in the form of exports.
So, Mehta suggests that any global fall in demand can impact its economic growth and local stock prices grievously. The solution to this problem, he adds, is to stick to larger economies such as the US economy, with many of its companies being listed on its exchanges and being well-regulated.
Adapting methodical approach
With stock markets at all-time highs across most parts of the world, Kavalireddi of FYERS said that investors need to adopt a methodical approach (Systematic Investment Plan) while investing in international funds.
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