scenario looks a bit grim. The Indian market is facing several problems. The interest rates show no sign of coming down in the future as the RBI has not relaxed its stance on it yet and is not keen on arriving at a decision yet. There have been downgrades by rating agencies. Many banks too have been downgraded. Though inflation has eased compared to the last few months, even this aspect does not seem to be encouraging enough. To top it off the rupee is also on a downward slope, which has put further pressure on the investment climate.
Additionally, regulatory bodies have been active. This has resulted in cancellation of licenses, imposition of penalties due to cartels, and adverse observations. While this is a welcome step, it has not helped improve the investment sentiments in our country.
A case for investing in foreign market
All of these factors have impacted stock markets. The reflection of policy paralysis can be seen in the market where uncertainty is high and the indexes are range bound. In such a scenario, investing in mutual funds offers a better option especially the ones that invest in the foreign market.
While these funds are not risk free, they offer another avenues for investment and diversification of assets.
International mutual funds
International mutual funds or overseas funds are portfolio of equities, bonds, and money market securities traded in foreign market. Recently these funds have gained in popularity because of the diversification it offers. It offers many benefits such as taking advantage of emerging markets, commodities boom, or business cycle of different markets.
Just like domestic funds, international mutual funds offer many varieties such as commodity based fund, thematic fund, country based, sector based, and others. Moreover, these funds are managed by experts in international markets. Many fund houses have international mutual funds in their portfolio. Investors can buy these funds as easily as they can buy domestic mutual funds.
Following are a few funds that invest in the foreign market. This is just a sample and there are many such funds available for possible investment. These funds are mentioned only for an illustrative and indicative purpose. Investor should invest only after further research and in depth study of the funds.
| Fund | Variants | Category | Description |
| DWS Global Agribusiness Offshore Fund | Growth, Dividend | Agro business | This is an open ended fund. The objective is to create capital appreciation in long term by investing in overseas funds which focus on agriculture sector and allied services. |
| HSBC Brazil Fund | Growth, Dividend | Brazil Market | This is an open ended fund with objective to build long term wealth by investing in predominantly funds focused on Brazil. |
| HSBC Emerging market fund | Growth, Dividend | Emerging market | The objective is to invest in emerging market and take advantage of high growth in these markets. |
| Mirae Asset China Advantage Fund – Regular Plan | Growth, Dividend | China market | The objective is to generate long term returns by investing in mutual funds which are China and Hong Kong focused. China, being the fastest growing economy in the world offers humongous opportunities for investors. |
Growth and dividends are variants of the same fund. Growth variant will not pay any dividend. You can make profit when you sell the fund. Dividend variants of the fund will pay you periodic dividends. You have the option to reinvest the dividends in the same fund or take cash and use it as you wish. Since dividend funds pay periodic cash, their net asset value (NAV) is lower than the growth variants.
There can be other variants of the fund which are known as plan A and B. These plans vary in their investment structure. For example, a mutual fund with plan A may invest 70% in Agriculture and 30% in money market. Plan B of the same mutual fund may invest 90% in agriculture and only 10% in money market.
Risks & Important Points
Every reward comes with the associated risk. While international mutual funds open up new avenues for diversification, they also expose investors to few risk factors.
First, international mutual funds invest in foreign markets and hence most of the investors will not have any idea about the business environment, changing business scenario, and regulatory consequences. This can be a major disadvantage, especially for active mutual fund investors who keep a keen eye on movements. In case of international mutual funds, they may find themselves helpless. Moreover, many of international mutual funds are new in nature and hence may not have any history of returns.
Second, investors may not get enough time to react to news which impact mutual funds and its NAV. There will be a time lag between when the policy decisions are announced in foreign countries and when it reaches to investors to make right decision.
Finally, international funds are prone to international political situation. While domestic market provides a better defence against any adverse movement, international politics and business are more difficult to understand. There may be possibility that a fund focused in China may be impacted because of war in Middle East. These events are difficult to predict as well as impossible to factor in your investment plan.
Conclusion
Indian mutual fund industry offers many choices as far as international mutual funds are concerned. Almost all the fund houses such as Birla sun life, HSBC, DSP black rock, Fidelity, Tata, ICICI Prudential Mutual Fund houses offer international mutual funds. Invest wisely and take advantage of the diversification.