Global diversification is critical, even with domestic markets scaling new heights, and global funds are the best route to international exposure. ET Wealth tells you what is on offer.
WHY INVEST IN GLOBAL FUNDS?
• As you are investing in a different country, you are insulated against intermittent dips and shocks in the domestic market.
• You benefit from some of the fastest-growing markets in the world.
• Exposure to foreign currency helps meet future requirements like funding of child’s education.
• Market risk: Geopolitical and socioeconomic factors in each country or region can influence fund performance.
• Currency risk: Even though your investment is in rupees, the underlying exposure is in foreign currency assets. Fluctuations in exchange rate can boost or hurt fund returns.
• All international funds are treated as non-equity funds under taxation rules.
• Gains from international funds are taxed at the marginal rate if sold within three years from data of purchase.
• Gains realised from sale after three years are eligible for indexation benefits in year of sale (20% with indexation and 10% without indexation).
STRUCTURE OF FUNDS VARY
• Funds that invest directly
This category consists of funds where the local fund manager handles the portfolio rather than relying on an offshore fund manager.
• Funds that invest indirectly
These operate either as feeder funds—pool in money from local investors and transfer it to the parent fund managed offshore—or pure fund of funds—those that invest the money in a basket of offshore funds.
• Funds that invest only a portion in foreign equity
These are domestic-focused equity funds that also take limited exposure to foreign equities, allowing moderate foreign equity participation while maintaining domestic focus and tax efficiency.
THE MANY FLAVOURS OF INTERNATIONAL FUNDS
These offer exposure to companies from a particular country or a broader region.
• While such funds allow you targeted exposure to specific region or growth, investors need deep understanding of the region to capture the growth story and exit at the right time.
These funds are not restricted by mandate to focus on any particular country, region or theme.
• They offer more diversified exposure to companies across the globe. They need fund managers to have expertise to handle portfolio to identify and monitor opportunities worldwide.
These offer exposure to specific opportunities worldwide arising from a broader theme such as commodities, energy, agriculture, gold mining etc.
• These funds help you ride a growth wave in specific segments you may not have access to in the domestic market. However, restricted exposure to single theme can put investors at risk.
BEST GLOBAL FUNDS ACROSS TIME FRAMES
Source: Value Research
US-focused funds have delivered the highest returns over three and five years.