International Funds are the mutual scheme of funds of a country that invest in securities and shares of companies from other countries. This means that investors from India are able to take part in investments of foreign corporations with international funds. Investors looking to add greater diversification to their portfolios, without limiting their investments to paper and shares may consider looking beyond the market in India.
In recent times there has been an increasing tendency among investors to go for international funds in order to diversify their process, while also reducing risk of concentration. It is a common practice for long-term investors to not focus their investments on an asset, share or geographic market. This is a good thing since it offers a certain degree of protection to the investment and the risk is also reduced.
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Adhil Shetty, CEO, Bankbazaar.com Adhil Shetty, CEO, Bankbazaar.com, states, “It’s advisable that one must also consider looking beyond the domestic horizon to profit from international investments. Although the majority of domestic investors tend to focus on India’s expansion story, there’s no reason not to harness the growth of other countries through placing a certain amount to your investment portfolio.”
The reasons that make the allocation of International Funds a good proposition
The first and most important thing is that investors must be aware that capital markets in every country do not always function in harmony. Based on various macroeconomic conditions, government policies and geo-political tensions, markets’ performance can differ. Sometimes, the difference is too large, making some markets in certain countries more appealing than others. It is generally observed that when the domestic market as well as emerging markets appear to be booming and their counterparts in the west or advanced economies are experiencing a downturn. Being able to access the world’s markets through international funds can put you in a position to gain from the expansion of other nations.
If you examine the American-based indexes such as the S&P 500 and NASDAQ They have been able to recover from their highs up to 32 percent. In some instances the drop is greater than that observed in Indian small and mid-cap stock. In the same time, Indian indices did not decline as much, and the current improvement has been much greater than US markets. This suggests that there is a huge potential in the market for Indian investors to gain of the US markets through investing in International Funds.
The following are the advantages that come from placing your money into International Funds.
A) Diversification across different geographies:International funds aid in broadening the geographical scope of your investment portfolio. Investors are exposed to markets outside of the United States and will strengthen the risk reduction strategy. It makes sure that an investor’s risk and reward are distributed across different stocks of countries and proves to be an effective risk management strategy.
B) Asset Allocation The allocation of assets is vital element for wealth creation. Your investments, which are based in one location, have the chance to allocate them to foreign financial assets. It allows investors to reap the benefits of a variety of financial markets, allowing you to benefit from diversifying exposure.
C) New Investment Themes: Making investments in new companies can add a new flavor the portfolio. Because foreign markets are more advanced than ours and offer themes and business opportunities that aren’t readily available in India or aren’t popular internationally, international funds bring the domestic investor international in their portfolios of investments. Thus, Indian investors aren’t denied the advantages of international trends in investment.
d) Provides a hedge against Currency Risks: Investments in international funds that track US indexes provide a substantial protection against the declining the Indian rupee with respect to US Dollar that is usually regarded as a secure refuge. Domestic investors do not place a lot of emphasis on the risk of currency fluctuations. If managed correctly the fluctuation in exchange rates could result in better returns.
It is worth noting that managing risk in currencies is crucial when it comes to investing. International funds can help you reap the benefits of the declining rupee. In the present scenario we see that this Indian currency has slowed down against the USD to a point of 80. Let’s suppose that investors placed their money into international funds when the Indian rupee was around 70 in comparison to USD and that the US market didn’t perform in any way during this period. In any case, due to the fluctuation in exchange rates investors could have earned gains that were greater than 14%..
How do I place an investment into International Funds?
The process of investing in international funds isn’t more complicated than investing in a mutual scheme of funds. There are many US Index-based funds that are available in India from various fund house. If you’re tech-savvy you can do it digitally at the click of only a few clicks. Otherwise, you can visit the mutual fund offices or speak to your financial advisor for assistance in doing the necessary. If you want to invest in the SIP option, you are able to do so. Lump sum investments can be put into.
However, considering the established history of SIPs, over the long term it is recommended to use the SIP model within International Funds as well to reap the benefits of the averaging of costs. It is important to note that due to the fall in international markets, especially the US and the US, the risk-to-reward ratio is favorable for investors who are looking to invest over the long term.
These tips can aid you in making a better decision about international investment funds and investments.
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