International Mutual Funds: What are types, benefits and how to invest?

Want to invest in mutual funds from companies based outside India? Here’s what you need to know about International Mutual Funds.
EXPLORE FUNDS
International Mutual Funds
EXPLORE FUNDS
4 mins
12 December 2023

Investing in mutual funds is a great way to diversify your portfolio and earn returns on your investments. International mutual funds are a type of mutual fund that invests in foreign markets. In this article, we will discuss what international mutual funds are, how to invest in them, how they work, who should invest in them, taxation on international mutual funds, factors to consider before investing in them, and the advantages of foreign funds.

What are International Mutual Funds?

International mutual funds are mutual funds that invest in foreign markets. These funds invest in stocks, bonds, and other securities of companies listed outside India. The objective of these funds is to provide investors with exposure to foreign markets and diversify their portfolio. International mutual funds are managed by professional fund managers who have expertise in investing in foreign markets.

How to Invest in International Funds?

It is simple to invest in international mutual funds. You have the option of investing in these funds via your broker or online investment platforms. To invest in international funds, you need a PAN card, a bank account, and a KYC (Know Your Customer) document. You can either make a lump sum investment or follow a Systematic Investment Plan (SIP).

How do international mutual funds work?

International mutual funds work like any other mutual fund. The fund manager pools money from investors and invests it in foreign markets. The returns on these funds depend on the performance of the foreign markets. The fund manager charges a fee for managing the fund, which is deducted from the returns generated by the fund.

Who should invest in international funds?

International mutual funds are suitable for investors who want to diversify their portfolio and earn returns from foreign markets. These funds are also suitable for investors who want to take advantage of the growth potential of foreign markets. However, investors should be aware that investing in international mutual funds involves higher risks than investing in domestic mutual funds.

Taxation on International Mutual Fund

International mutual funds are taxed like any other mutual fund. The returns generated by these funds are taxed as capital gains. The tax rate depends on the holding period of the investment. If the investment is held for less than three years, it is considered a short-term capital gain and is taxed at the investor’s income tax slab rate. If the investment is held for more than three years, it is considered a long-term capital gain and is taxed at 20% with indexation.

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Factors to consider before investing in international mutual funds

Before investing in international mutual funds, investors should consider the following factors:

  1. Risk: Investing in international mutual funds involves higher risks than investing in domestic mutual funds. Investors should be aware of the risks such as country risk, event risk, restrictions imposed overseas, economic factors etc. involved and invest accordingly.
  2. Currency risk: Investing in international mutual funds involves currency risk. The returns generated by these funds are affected by the exchange rate fluctuations between the Indian rupee and the foreign currency.
  3. Fund manager: Investors should choose a fund manager who has expertise in investing in foreign markets.
  4. Expense ratio: Investors should consider the expense ratio of the fund before investing. This is the fee that the fund manager charges for managing the fund.

Advantages of Foreign Funds

Investing in international mutual funds has several advantages:

  1. Diversification: International mutual funds provide investors with exposure to foreign markets and help diversify their portfolio.
  2. Growth potential: Investing in international mutual funds provides investors with access to the growth potential of foreign markets.
  3. Currency hedge: Investing in international mutual funds provides investors with a currency hedge against the depreciation of the Indian rupee.

Conclusion

International mutual funds are a great way to diversify your portfolio and earn returns from foreign markets. These funds are suitable for investors who want to take advantage of the growth potential of foreign markets. However, investors should be aware that investing in international mutual funds involves higher risks than investing in domestic mutual funds. Before investing in these funds, investors should consider the factors mentioned above and choose a fund manager who has expertise in investing in foreign markets.

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Frequently asked questions

How long should I stay invested in international mutual funds?

There is no definitive answer to how long you should stay invested in international mutual funds, as it depends on your risk appetite, investment goals, and market conditions. Do note that international mutual funds carry unique risks such as volatility due to geopolitical events or fluctuations in currencies. Therefore, you should have a long-term horizon  to ride out the short-term fluctuations and benefit from the growth potential of foreign markets.

Where do international mutual funds invest?

International mutual funds are equity funds, which invest in the securities and stocks of companies that are listed outside India. They aid you in diversifying your portfolio and help you make the most of growth opportunities in different markets and sectors.

Are international mutual funds high risk?

Yes, they are considered as high risk as they are vulnerable to many factors like geo-political events, currency fluctuations, and more.

Should I invest in international mutual funds?

International mutual funds buy shares of companies that are not in India. They can make your portfolio more varied, lower risk, and let you benefit from different markets. But they also have more expenses, changes in currency value, and problems with politics and economy. So, you should only put money in international mutual funds if you can wait for a long time, take high risk, and know what the fund wants to do and how.

How can international funds benefit an investor's portfolio?

International funds can benefit an investor's portfolio by providing geographic diversification, reducing risk associated with regional economic trends. They offer exposure to global markets, potentially tapping into high-growth sectors and currencies. Additionally, international funds can act as a hedge against domestic market fluctuations, enhancing overall portfolio resilience.

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Disclaimer

Bajaj Finance Limited (“BFL”) is a Non-Banking Financial Company carrying the business of acceptance of deposits, providing lending solutions to Retail & Corporate customers, and is a Corporate agent of various insurance Companies. BFL is also registered with the Association of Mutual Funds in India (“AMFI”) as a distributor of third party Mutual Funds (shortly referred as ‘Mutual Funds’).

BFL does NOT:

(i) provide investment advisory services in any manner or form;

(ii) perform risk profiling of the investor;

(iii) carry customized/personalized suitability assessment;

(iv) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.


In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on ‘As-is’ basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme /Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other / better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Bajaj Finserv Direct Limited, (“BFDL”), a wholly owned subsidiary of Bajaj Finserv Limited (is a Registered with SEBI as an Investment Advisor with Registration no. INA000016083). BFDL enables resident Indian customers to directly invest in third party mutual funds through its online platform. BFDL entered into a referral arrangement with BFL, whereunder, BFL may, without risk or responsibility on its part, refer the resident Indian customers who are interested in placing their investments in Direct Mutual Funds through BFDL online platform. Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc. and shall also consult their financial advisers, if they are unsure about the suitability of the scheme before investing