Some of the international funds available offer a good scope for diversification
11-Feb-2011 •Research Desk
My portfolio has a good number of large-cap, large- and mid-cap funds besides a few tax savers and sector funds. I am interested in investing in global funds. What is the way to go about investing in these?
— Raghav Khera
Investing in international funds is for mature investors looking to diversify with risks and not for those blindly chasing high returns.
Positives: The reason you should consider global investments is that by spreading your money among several markets, you achieve what stock market theorists have been propounding for years—diversification and hedging risk by spreading it across a mix of assets and markets. Leading market indicators across major markets show that no country manages to be at the top of the performance chart each year. And as markets are cyclical, the least expected market may turn into the best performer in a particular year.
Negatives: The risks when investing in global funds are many. There is currency risk, which augments every time the rupee appreciates and in certain markets even political risks that can impact your investments. Post the global meltdown of 2008, India has recovered, while many developed markets are yet to recover. Moreover, there is tax disadvantage as investments in these funds are not treated the way other domestic Indian equity mutual funds are. Also, the choice of funds is limited. The available options are not necessarily the best of global funds, making it difficult to choose amongst this set.
However, investing in these funds does present an opportunity to take part in the world’s booming economies and growing stock markets. The key is to evaluate the pros and cons to see if this investment avenue fits your investment needs and has a place in your portfolio.