Thanks to India being one of the world’s fastest growing economies, a large chunk of investors have been able to generate sizeable wealth from the Indian markets over the years. However, India is still an individual economy and is subject to economic cycles. Moreover, it isn’t averse to events that might affect it exclusively, or at the very least – in greater proportion to the rest of the world.
It is during these instances that an investor can gain from having a global exposure in his investments. After all, by channelling money towards more than one economy, the returns can be smoother over time.
Here are some things to keep in mind if you decide to add an international Mutual Fund to your portfolio.
Diversify Across Geographies
In the world of finance, diversification allows you to hedge risk by tying your money across various asset classes, financial instruments or industries. In the context of international funds, the key differentiator is geography: a company based in another continent is sufficiently delinked from the ups and downs of the local economy, thereby, forging a different trajectory to the other components of your portfolio.
As an Indian investor, there are many country specific, or even industry specific international funds you can opt for. However, don’t diversify just for the sake of diversification, and make sure that the companies you are investing in are strong and have a healthy future growth potential.
Exposure To Renowned Blue-chip Companies
International funds also allow you the opportunity to invest money in large companies outside the purview of the Indian stock market. Such companies – particularly in sectors like technology – offer services which Indians tend to use on a daily basis, and owning such in a portfolio might be a sensible option.
Tax Treatment Of International Funds
The taxation of international funds is varied. Hybrid global funds that invest at least 65% of their corpus in domestic companies with the rest overseas are taxed just like a regular equity fund, with long term gains being exempt from tax after a year.
On the other hand, international funds which solely invest in overseas markets are taxed like a debt fund. Any gains garnered from these funds in under 3 years is added to the individual’s income and taxed according to his tax bracket. For longer periods, long-term capital gain tax with indexation will apply.
Overall, adding an international Mutual Fund to a basket of India-centric funds might be a clever move for the savvy investor. As always, remember to conduct adequate research and weigh your options before selecting one particular fund over the other.
(The writer is CEO, BankBazaar.com)