Mutual funds are a pool of professionally managed funds that invest in a diversified portfolio of securities to help its investors earn some capital appreciation over the long term. Mutual fund managers actively buy and sell securities to help the fund achieve its investment objective and, in the process, outperform its underlying benchmark.
Mutual funds do not guarantee returns but in the past, they have outperformed all other investment avenues. They carry investment risk which is why retail investors must seek professional consultation before making an investment decision.
There are so many mutual fund categories, subcategories that for someone who is new and investing for the first time, it might be difficult for them to navigate through so many investment products and narrow down to a scheme that is suitable for them. This is the reason why several mutual fund advisors suggest first time investors to determine their investment objective, prioritize their goals, determine their risk appetite, know their investment horizon, and then make an informed investment decision.
If you are someone who wishes to invest in mutual funds that invest in foreign companies like Google, Apple, Facebook, Amazon, Microsoft etc. you can consider investing in international mutual funds.
What are international mutual funds?
International mutual funds are open ended equity schemes which invest in stocks of foreign companies that aren’t publicly listed in India. They are ideal for investors who wish to invest in foreign markets but do not have the resources to do so. There are two types of international funds – those which directly invest in equity and equity related instruments or global companies and those which buy units of funds which invest in international markets.
Benefits of investing in international mutual funds
A lot of people feel that since these funds invest in international markets, they may have a high expense ratio and often refrain from investing. But the fact is that SEBI has capped expense ratio for international funds at 2.5% and fund houses cannot levy an expense ratio higher than that on any international mutual funds. Also, known as overseas funds and global funds international mutual funds can be an ideal investment option for those who are using foreign products and services and want to invest in them and earn some returns. Most of us are giving business to global giants like Facebook, Apple etc. by using their service, why not invest in them and try to benefit from their constant growth.
International market cycles work in a different way than how Indian economy works. Investors can take advantage of developed economies by investing in an international fund. These funds are also ideal for anyone who wishes to add diversification to their investment portfolio.
Things to consider before investing in international funds
International funds may not be ideal for first time investors as one may need to have a decent understanding of how international markets function. Also, investing in global economies should not be your priority. You must invest in a mutual fund scheme whose investment objective aligns with that of yours. The main investment objective of any investor must be to ensure that over the long term, their investments are able to generate decent returns and help them create long term wealth.
Investors should also decide if they want to make a lumpsum investment or if they want to opt for a systematic investment plan. SIP will allow retail investors to save and invest a fixed sum at periodic intervals (typically every month). This way, they can minimize investment risk and ensure that they inculcate the discipline of regular investing.