Skip to main content

What are International Funds

Ask any finance professional 'should investors diversify their investments?' The answer will be a resounding yes. Diversification is a key risk mitigation strategy. Generally, we view diversification as investing in unrelated asset classes. However, diversification also means spreading your risk across geographies.

Usually individuals invest all their savings in their home country. This exposes investors to country risk. That is any negative economic or political event in the country affects their investment returns. A way to shield your clients against country risk is to invest internationally. 

Investing directly in foreign markets   requires expertise and is subject to investment limits. However, investors planning to diversify internationally can do so via the mutual fund route.

Let us understand the pros and cons of investing in foreign funds.

Advantages:

  • Risk mitigation - Helps in providing portfolio diversification
  • Broader investment basket - Your clients can gain exposure to strong international businesses which are not listed in India
  • No limit – RBI has imposed certain restrictions on direct foreign investments. However, there are no such restrictions on investments made through foreign funds. As per RBI guidelines, the annual overseas investment ceiling for individuals is US $250,000 (approx. 1.7 crore).
  • Planning for foreign education – Children of many clients dream of studying in a foreign university. Being well aware of the foreign education costs many parents save for their children's education. However, these savings do not adequately reflect the impact of currency on investments. To elaborate assume the year is 2008, your clients calculate that they need to save 50 thousand dollars that is 21 lakhs for their son's education over a period of 10 years. USD/INR was around 42 in 2008. Come 2018 Rupee has depreciated to 68 that is a change of 61%. Now the same amount 50 thousand USD translates to 34 lakh Rupees. This huge increase will turn the client's financial calculations on its head. Instead if the client would have invested in a foreign fund investing in US markets then the currency movement would have no impact on the client's financial plan.    

Disadvantages:

  • Increased global risk - The client portfolio is exposed to country specific risks of all economies in which the international fund invests
  • Currency risk – This is the main risk while investing internationally. Any movement in Rupee compared to the currency of underlying investment influences scheme performance.  An appreciating Rupee negatively affects the returns while a depreciating Rupee boosts returns.
  • Tax inefficiency - For tax purposes, they are treated as debt funds. Earlier when long term capital gains tax (LTCG) for equities was nil foreign funds were at a significant disadvantage. However, this disparity has reduced post budget as the Government has reintroduced long-term capital gains (LTCG) tax on equity investments.

Now, profits (above one lakh) from equity investments where the holding period is more than a year are taxed at 10%. While, long-term investments in foreign funds (holding period greater than three years) are taxed at 20% with indexation benefit.





SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.
Read more

Mutual Fund Review: SBI Bluechip Fund

Given SBI Bluechip Fund's past performance and shrinking asset base, the fund has neither been able to hold back its investors nor enthuse new ones   LAUNCHED at the peak of the bull-run in January 2006, SBI Bluechip was able to attract many investors given the fact that it hails from the well-known fund house. However, the fund so far has not been able to live up to the expectation of investors. This was quite evident by its shrinking asset under management. The scheme is today left with only a third of its original asset size of Rs 3,000 crore. PERFORMANCE: The fund has plunged in ET Quarterly MF rating as well. From its earlier spot in the silver category in June 2009 quarter, the fund now stands in the last cadre, Lead.    Benchmarked to the BSE 100, the fund has outperformed neither the benchmark nor the major market indices including the Sensex and the Nifty. In its first year, the fund posted 17% return, which appears meager when compared with the 40% gain in the BSE 1...
Read more

Principal Emerging Bluechip

In its near ten year history, this fund has managed to consistently beat its benchmark by huge margins The primary aim of Principal Emerging Bluechip fund is to achieve long term capital appreciation by investing in equity and related instruments of mid and small-cap companies. In its near ten year history, this fund has managed to consistently beat its benchmark by huge margins. This fund defined the mid-cap universe as stocks with the market capitalisation that falls within the range of the Nifty Midcap Index. But, it can pick stocks from outside this index and also into IPOs where the market capitalisation falls into this range. Principal Emerging Bluechip fund's portfolio is well diversified in up to 70 stocks, which has aided in its performance over different market cycles. On analysing its portfolio, the investments are in quality companies that meet its investment criteria with a growth-style approach. Not a very big-sized fund, it has all the necessary traits to invest with...
Read more

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now