Home>
Blog>
Investments>
International mutual funds

International Funds: Definition, Types, Benefits & Limitations

Name: What are International Funds: Meaning, Types, Features and Taxation Rules
Brand: Axis Max Life Insurance
Rating: 4.3 (1213 reviews)

If you want to invest in domestic companies through equity stocks and domestic mutual funds, you can easily do it through AMCs i.e. mutual fund houses, stock brokers, or through

Disclaimer

: In Unit Linked Policies, the investment Risk in the investment portfolio is borne by the policyholder.

Disclaimer

: Axis Max Life Smart Wealth Plan |A Non-Linked, Non-Participating, Individual Life Insurance Savings Plan | @ Rs.31,83,264 as lump sum at the end of 20 years, for a 30 years old healthy male.

Written by

Abhishek Chakravarti

BFSI Writer

Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Axis Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

Reviewed by

Sahil Rawal

BFSI Expert

Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

What Are International Funds?

International Funds, also known as Foreign Mutual Funds or Overseas Funds, invest primarily in companies listed on foreign stock exchanges. This means these schemes are similar to Thematic Funds in one way. International funds must invest 80% of their assets in equity and equity-related assets of foreign companies, as per SEBI regulations. As of March 31, 2023, there were over 100 international funds in India that have over Rs.82,000 crores in assets under management.

What Are the Types of International Funds in India?

In India, a plethora of international funds awaits investors seeking diverse global investment options. These funds adopt varied approaches to international investing, leading to the classification of them into three distinct categories:

1. Global Funds

International funds invest globally, building portfolios with stocks from companies around the world. This approach aims to achieve geographical diversification, so even if markets in one geography underperform, investments in other markets can potentially balance and protect the investor's overall portfolio.

2. Thematic International Funds

Similar to domestic thematic mutual funds, international thematic funds also adopt a theme-based investing strategy. For instance, a domestic fund with an infrastructure theme may invest in cement, power, and steel company stocks. Likewise, international thematic funds focus on a specific theme or sector but invest in foreign companies relevant to that particular theme.

3. Country or Region-Specific Funds

As their name implies, these funds concentrate on investing in either a particular region or a specific country's stock markets. For instance, an international fund might solely target the US stock markets, while another could focus on Asian markets like Japan, China and Taiwan. The primary objective is to leverage the investment opportunities arising from these markets to achieve favourable returns for Indian investors.

4. International Fund of Funds

International fund of funds are mutual funds of domestic AMCs that invest primarily in exchange traded fundsthat are domiciled in various international locations. So, the underlying assets of these international funds are stocks of international companies even though the investor is making investments with a domestic fund house and in the local currency.

What Are the Key Benefits of International Mutual Funds

Knowing the upsides and drawbacks of a fund is the key to making a wise investment decision. Find the **key benefits and limitations** of Foreign Mutual Funds below:

Diversification

Investors can diversify their portfolios by using international mutual funds to participate in a range of international markets and sectors. Investors can lessen market risks and the effects of regional economic swings by dispersing their investments over a number of different nations and areas.

International Investment Opportunities

Access to international funds allows for the possibility of making investments in emerging industries that might not be available through domestic companies. Investors can access emerging markets and sectors of the economy that might not be easily accessible in their native country.

Expert Management

Professionals with experience and knowledge of international markets oversee mutual funds. To make wise investment selections and perhaps maximise investor profits, they conduct in-depth research and analysis.

Risk management:

By distributing assets across different countries and regions, aids in better risk management through diversification. Gains in other markets may balance out possible losses if one market underperforms, resulting in a more balanced and resilient approach to investing.

Access to Unique Themes and Industries:

International funds in India can help investors access unique themes and industries that might not be available through domestic companies. This can further help diversify the investment portfolio and allow users to access benefits of emerging high growth industries that might not be available otherwise.

What Is the Procedure for Taxation of International Funds

Despite international mutual funds having equity investments as their underlying asset, they are subject to the taxation rules of mutual funds belonging to the non-equity category. So, returns generated from international funds are taxed the same as debt funds in India even if they invest in equity and equity-related assets. When an investor profits from selling their international fund investment, it is considered a capital gain. Similar to debt funds, the taxation of these capital gains is based on the duration of the investment held.

For investments held for less than three years, they are classified as Short-Term Capital Gain (STCG). These gains are added to the investor's income under the head “income from other sources” and subjected to taxation according to the applicable respective tax bracket.
On the other hand, investments held for three years or more are categorised as Long-Term Capital Gain (LTCG). If units were purchased prior to April 1, 2023, these gains are taxed at a rate of 20% on the gains after indexation. If international fund units were purchased

Who Should Invest in International Funds?

If the following criteria match your financial or investment objectives, you can consider investing in Overseas Funds:

● Having A Domestic-Oriented Portfolio

International funds offer an excellent opportunity for investors who already possess a well-diversified portfolio of domestic companies. By investing in these funds, investors can diversify their portfolios further and have the potential to achieve favourable returns.

● Looking for Global Investments

At any given period, various markets exhibit distinct performances. At times when the Indian markets showed steady growth, while simultaneously, the US stock markets experienced exceptional performance. A notable example is from 2016 when the BSE Sensex saw a modest increase of 3.91%, whereas the Dow Jones Industrial Average Index soared around 15%. Investors can invest in international funds and take advantage of such disparities between markets. This allows them to benefit from the performance of other markets when domestic markets deliver average returns or face challenges.

● Looking to Invest in Global Market Leaders

Certain global brands such as Apple, Netflix, Nike, Tesla, Facebook, and others have become undeniable favourites and, as a result, have taken the lead in the market. However, these market leaders are not publicly listed on Indian stock exchanges. If you desire to become a shareholder of your preferred brands and benefit from their profits, you can achieve this by investing in international funds.

● Long Term Horizon

For investors aiming to accumulate a substantial corpus to achieve long-term goals such as retirement planning, funding a child's education, and more, international funds present a viable solution. Embracing a long-term investment approach shields you from the fluctuations of equity markets and allows you to capitalise on the power of compounding. To fully leverage the advantages provided by international funds, it is recommended to maintain an investment horizon of at least 5 years.

When should you start Investing in Investment Plan?

Every one of us has a set of goals that we strive to achieve in our lifetime. In today’s day and age, however, we cannot rely on our savings only.It is through investment plans that we can create a robust financial portfolio to realise these goals.

To fulfil your goals of affording a home or securing your retirement financially, it is crucial that you identify the best investment plan that will help you grow your money over time. Therefore, you need to have a goal and a tentative timeline to achieve in mind before you start investing in any of the best investment plans with high returns. Remember, once you have a goal in sight, you need to start investing as soon as possible – doing so will help you streamline the process.

Frequently Asked Questions (FAQs)

What are some common risks related to international investments?

What are international index funds?

Do international fund investments give tax benefits?

Can I make systematic investments in international mutual funds?

What is the minimum investment required in the case of international funds?

ARN NO: Oct23/Bg/02M

Source:

www.etmoney.com/learn/mutual-funds/international-mutual-fund/

www.icicidirect.com/ilearn/mutual-fund/articles/what-are-international-mutual-funds

groww.in/p/international-mutual-funds

www.edelweissmf.com/investor-insights/mutual-fund-investment-tips-and-articles/what-are-international-mutual-funds

scripbox.com/mutual-fund/best-international-mutual-funds

www.indiainfoline.com/knowledge-center/mutual-funds/what-are-international-mutual-funds

www.etmoney.com/mutual-funds/edelweiss-us-value-equity-offshore-fund-direct-growth/19589

MAIN CATEGORY