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Global Mutual Funds diversify Investment Portfolio

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A LOT of funds these days are offering investors the choice to invest in foreign markets. This area has seen a lot of activity recently in the field of US-focused funds. With some new fund launches in this space as well as existing ones available for investment, the question for investors is whether they should invest in such a fund for their portfolio. It is also important to understand the kind of investors for whom these kinds of funds will actually make sense. Here is a careful look at the entire issue and how it can be tackled.

US based funds:

The US based funds are equity oriented in nature, which invest their corpus into stocks that are listed on the US stock exchanges. This also gives a global exposure to the investment because a lot of the companies that are listed in the US have sales coming in from across the world. There are a couple of ways in which fund managers actually achieve this investment objective and one is through investing in a fund that is already present in the portfolio of their parent company. So the local investment becomes a feeder fund where all that it does is just channel the amount to the overseas fund.

The other way in which the investment takes place is by the fund manager actually choosing the required investments for the fund portfolio. While either of the routes can turn out to be a good way of investing, it is often the channelling of the money to the overseas fund that increases the confidence level of investors because of the track record of the fund in operation abroad.

Exposure and risk:

The first thing that this investment actually does is to provide an exposure for investors' portfolio that is actually different from what they actually see for their local investments.

It also acts as a tool for diversification in the sense that there is a different geographical market that the investment provides an exposure to. The other factor is that the foreign exchange conversion will become an added reason that will impact the returns from the investment. Depreciation in the rupee will increase the value of the US investment even though this might not have gained much in the traded price, and vice versa.

This is the reason why investors will have to consider the expected movement in the foreign exchange rates as this can have a severe impact as far as the overall returns from the investment are concerned.

Current situation:

While contemplating an investment, investors have to consider several factors that will help them in making the right choice for their money. One is the potential for the actual rise in the value of the investment. For this purpose they would have to look at the portfolio of the fund and the kind of exposure that they are taking. This will give them an idea about the potential for growth depending upon the stocks that have been chosen in the portfolio. The other is also the overall valuation that is present in the US market. There have been record highs that have been hit and it also has to be considered whether there are returns that will be sustained going ahead considering the existing valuation that exists today. In addition, the strength of the dollar against the rupee would also be a factor that would play an important role as far as the final returns from the investment are actually concerned.

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