Investing in International Mutual Funds: A Comprehensive Guide

Investing in international mutual funds offers you a way to diversify your portfolio and potentially benefit from the growth of global economies. This guide will help you understand the various methods of investment and provide you with the information needed to make an informed decision.

Methods of Investing in International Mutual Funds

There are two primary methods for investing in international mutual funds:

Feeder Funds

One method involves investing in Indian mutual funds that specialize in investing in international funds. Indian feeder funds, for example, can invest in foreign mutual funds such as index funds, thematic funds, gold, agriculture, commodities, real estate, and more. This method allows Indian investors to gain exposure to international markets without the complexities associated with direct foreign investments.

Direct Investments through LRS

Another option is to open an account with Indian brokers that enable you to buy foreign mutual funds directly. This is governed by the Liberalised Remittance Scheme (LRS), which has an annual limit of USD 250,000.

Selecting the Best International Mutual Fund

To select the best international mutual fund, you need to consider several factors:

Investment Styles

Investment styles include Geographical Investment, Thematic, and Regional. Each style targets different market segments, and you should choose the one that aligns with your investment goals and risk tolerance.

Fund Size and Expense Ratio

Look for funds with a maximum fund size. A fund that is too small may not have the necessary diversification to absorb market risks. Additionally, compare the expense ratio and exit load between funds to choose the one that offers the lowest costs.

Asset Allocation and Diversification

Check the fund’s diversification of asset allocation, particularly the Market Cap. Diversification across different market caps can help reduce risks and improve returns.

Performance Metrics

Analyze the fund’s performance over the past year, three years, and five years. This will give you an idea of the fund's consistency and its ability to deliver returns in different market conditions.

Credit Rating

Assess the credit rating of the fund through reputable credit rating agencies. A higher credit rating indicates a lower risk of default and better overall fund performance.

Popular Investment Platforms

Investing in international mutual funds can be streamlined through popular Indian stock brokers. Some of the options include:

These platforms offer a user-friendly interface for selecting and investing in international mutual funds. They also provide essential information such as fund performance, investment styles, and credit ratings.

Conclusion

Investing in international mutual funds can be a strategic way to expand your investment portfolio. By carefully selecting the right investment style, assessing the fund size and expenses, diversifying your asset allocation, analyzing performance metrics, and considering credit ratings, you can make informed decisions that align with your investment goals and risk tolerance.