International funds: Bridge over troubled waters

International funds have faced rough weather in recent years, with the double whammy of poor performance in 2022 and the change in tax rules scarring them soon after. But loyalty finally paid off for those who endured the turbulence, as these funds saw a smart uptick in 2023. Nasdaq-100 was particularly impressive, delivering 55 per cent returns last year, outperforming even our very own BSE SmallCap index's 47.5 per cent. Yet, dark clouds continue to loom over the global equities markets. The UK and Japan's economies have shrunk in the last two quarters, officially entering a recession. Chinese equities have also been under the pump. So, from a global standpoint, the financial struggles aren't over yet, even for the US. Inflows continue to dwindle Back home, the RBI (Reserve Bank of India) is yet to provide an update on increasing overseas remittance limits for mutual funds . To exacerbate matters, removing indexation benefits for international funds, which snatched away a critical tax advantage, cast a dry spell on category inflows. However, despite international funds bracing for a heavy storm from multiple fronts, we believe their benefits still outweigh the threats. Where to invest? We view international equity as a supplementary allocation (15-20 per cent) to an investor's core equity investments. It protects your portfolio from going haywire if there's a sharp correction in the Indian markets. Further, the Nasdaq-100 index, our preferred choice for international diversification, serves as a conduit for investing in opportunities n