International Funds

One of the easiest ways to get started in international investing is through mutual funds. International funds are now available in dozens of flavours. Some focus on a single country or geographic region, while others invest all over the world. Thematic funds such as commodity oriented or infrastructure focused schemes are also catching up.

If we talk about performance of international schemes, they are exhibiting a mixed trend. While in certain periods they may have outperformed their benchmark indices and domestic equity diversified players by a good margin on other occasions they have severely disappointed investors. If we see the latest yearly performance of international funds, their returns compare very well with the performance of domestic funds. World Gold Funds have delivered the best performance during this period with returns of more than 100%. However of late performance of international funds have again started slipping and a comparison of the most recent six months suggests a significant underperformance compared to their domestic peers.

These schemes also have to face the risk of currency conversion as sometimes there performances are severely impacted due to adverse movements in the underlying currencies. Though, we can conclude that generally these schemes have not helped investors, however at times they are a good means of diversification for your portfolio. But, few things should always be kept in mind before investing in any of the international fund i.e.

Allocation to foreign markets:
It is always important to have a look at the percentage allocation to foreign markets. If at least 65% is not allocated to Indian Equity markets, it would not be able to enjoy the taxation benefits of short term and long term capital gains associated with investments in Indian equities. The tax implication would be the same as that of a debt scheme i.e. any income would be added to income under the head ‘Other Income’.

Hedge against Currency:
As the final returns would depend on the currency movements which fund managers are not allowed to directly hedge, it is very necessary to check weather there is any natural or artificial hedging parameters that have been considered to lower the volatility in returns arising out of currency fluctuations.

Scheme Objective:
To take a viable decision, it is necessary to know the objective of the scheme. Different schemes may have different goals which may or may not agree with the objectives of the investor.

Don’t always follow the Buy and Hold approach
As most of these investments are seasonal in nature and carry the risk of currency conversion, it is necessary to keep monitoring and reviewing these investments regularly.