International mutual funds: Patience rewarded

In the past one year, international funds have proven to be rewarding. The journey hasn't been easy, though. If their disappointing performance in 2022 was not enough, the tax rule change in early 2023 was a hard blow for the investors. But despite all odds, those who followed our advice and stayed put in international funds have earned healthy returns to compensate for the pain endured. But given a significant rally already behind and some major economies slipping into recession, should you continue to invest in international funds? Here, we provide an update on this category and what you should do now. Strong performance The year 2023 has been largely positive for the global equities market. With inflation receding in many countries, rate cuts in major economies are expected this year, fueling investors' optimism. However, the US has been at the centre of the spotlight. Not only did it grow despite all odds, but it also turned out to be the most rewarding for investors. The Nasdaq 100 index delivered an impressive 55 per cent return in 2023, outshining our domestic BSE SmallCap index, which also gave a remarkable 47.5 per cent return in the same period. That said, not everything is hunky-dory. The UK and Japan's economies have shrunk in the last two quarters and, thereby, have officially entered into a recession. Chinese equities have also been under pressure. So, from a global standpoint, the financial struggles aren't over just yet, even for the US. Inflows continue to dwindle There is still no update from the Reserve Bank of India (RBI) on increasing overseas remittance limits. Moreover, the removal of indexation benefits for international funds in last year's Budget has cast a dry spell on category inflows. As evident from the graph, the net flows for the category as a whole co