Best International Mutual Funds to Invest in 2023
People are becoming increasingly aware of the benefits of international investments. As a result, financial experts are observing a growing desire to explore different markets across the world among investors. International mutual funds, also referred to as foreign mutual funds or overseas funds, invest in companies in foreign countries. Generally, these are funds of funds (FoF) investing in international indices or ETFs.
The following are the best international mutual funds in India in terms of their long-term performance.
List of Best International Mutual Funds in 2022
The table below shows the top international mutual funds of 2022 based on their 5-year annualised returns:
|International Mutual Fund||3-Year Annualised Returns||5-Year Annualised Returns|
|ICICI Prudential US Bluechip Equity Fund-Direct Plan-Growth||12.87%||14.84%|
|DSP US Flexible Equity Fund-Direct Plan-Growth||14.87%||14.15%|
|Franklin India Feeder Franklin US Opportunities Fund-Direct-Growth||10.54%||13.91%|
|Nippon India US Equity Opportunities Fund-Direct Plan-Growth||10.88%||13.78%|
|Edelweiss US Value Equity Offshore Fund-Direct Plan-Growth||13.00%||12.25%|
|DSP World Mining Fund-Direct Plan-Growth||17.33%||12.11%|
|Edelweiss ASEAN Equity Offshore Fund-Direct Plan-Growth||3.54%||5.16%|
|DSP World Agriculture Fund-Direct Plan-Growth||4.23%||4.03%|
*Returns data valid as of August 20, 2022
add a disclosure saying we are not MF advisors. Invest after consulting your financial advisor
Different Types of International Mutual Funds
Detailed below are the different types of international mutual funds:
- Regional or Country-Specific Funds
Regional funds invest in companies from a specific geographical region. For example, mutual funds that invest in companies from a particular region like the USA or Asia are referred to as regional funds.
Similarly, country-specific mutual funds invest in companies of only one country. These funds enable people to benefit from the economic development of that country.
- Thematic International Funds
These international funds follow a theme-based investment approach, i.e. they invest in stocks of foreign companies that fall under a specific theme or sector. The primary objective of these funds is to gain more exposure in a particular sector. Some common sectors that thematic international funds invest in are technology, infrastructure, mining, pharmaceuticals, oil and gas, real estate and healthcare.
- Global Funds
These are international mutual funds that invest in companies across many countries. People, who wish to benefit from global foreign securities and do not wish to limit their investments to a specific region, should consider global funds. Moreover, when an investment portfolio is exposed to many international markets, it helps mitigate the risks associated with region-specific investments.
Who Should Invest in International Mutual Funds in India?
Given below are investor personas who may prefer investing in international mutual funds:
- People with a long investment horizon
International mutual funds are an ideal investment option for long-term financial goals like children’s education or retirement plan. Moreover, a long investment horizon protects the investors against the risks associated with the global equity markets.
Additionally, investors can also receive the benefit of compounding. However, please note that the minimum investment tenure should be 5 years to receive all the benefits of an international fund.
- Investors waiting to leverage opportunities in various markets
Financial experts have observed that different markets perform differently during a particular time. There have been many instances in the past when the markets of one region or country have underperformed compared to others.
For example, in 2016, the BSE (Bombay Stock Exchange) Sensex rose by only 3.91%. However, in the same year, the Dow Jones Industrial Average Index, which is a stock market index in the USA, rose by 15.24%. This example illustrates that international mutual funds allow investors to benefit from global markets at a time when domestic markets are going through a hard time.
- People who wish to invest in global market leaders
Many global companies are greatly popular among Indian investors. Examples include Netflix, Facebook, Apple, Google etc. However, a major disadvantage is that these international market leaders are not listed on Indian stock exchanges.
For many investors, the only way to own shares of these companies is by investing in international mutual funds.
- Equity investors who have a diversified domestic portfolio
Investors with a well-diversified portfolio of Indian stocks should ideally invest in these funds. International mutual funds enable them to diversify their portfolio further. As a result, they get the chance to earn higher risk adjusted returns.
Indian investors may need to have a higher risk appetite than required for investing in domestic equity funds, as international funds might have higher drawdowns during tough market conditions
Benefits of Investing in International Mutual Funds
Listed below are the benefits of investing in these mutual funds:
- Provides easy access to international markets
It is not easy to invest in international markets. While some investors get the opportunity to invest in foreign markets directly, the investment methods can be quite difficult. This is because every country has separate rules and regulations governing foreign investors.
However, international mutual funds make it easy for investors to take part in the growth trajectory of the global market leaders. In addition, such investors do not have to worry about market research because experienced fund managers are in charge of these international funds.
- Currency diversification
If an individual invests in a single currency, his portfolio might have a negative effect if the home currency value depreciates. But, if the investment portfolio consists of international securities, then the different currencies reduce the negative impact of the home currency’s value depreciation.
- Geographic diversification
Investing in international funds ensures the geographical diversification of the investment portfolio. As a result, it minimises the concentration risk. In addition, a portfolio of international stocks helps investors leverage the opportunities in the global market.
Risks Associated with the International Mutual Funds
Given below are the two main risks associated with international mutual funds:
- Economic and political risks
When a country undergoes a lot of political turmoil, it has a major impact on its economy. For example, economic and political risks are the major factors that affect the Indian domestic market. Moreover, these factors affect domestic investments negatively.
Since international mutual funds invest in foreign regions and countries, changes in that region’s political and economic conditions can negatively impact investments in international funds.
- Currency risks
When an individual invests in a single currency, the investments become subject to currency risks, also called exchange rate risks. Suppose an Indian investor invests in an international mutual fund in rupees. If the international fund invests in US markets, his investment will get converted to USD (US dollars).
However, it will benefit the Indian investor only if the value of the American currency appreciates with respect to the Indian rupee. On the other hand, if the value of the USD depreciates compared to the Indian rupee, it will have a negative effect on his investment.
Taxation for International Mutual Funds
Given below are the rules of taxation for international funds:
- Many people assume that international mutual funds are taxed like equity funds because they invest in equities. However, this is not the case in India. These funds are taxed the same way as domestic debt mutual funds or fixed income funds. The tax rate depends on the holding period of the investment and the capital gains.
- If the holding period is less than three years, it is considered STCG (Short-Term Capital Gains). These get added to the investor’s income and are taxed according to the income tax slab rate he or she belongs to.
- However, if the holding period is three years or more, the capital gains are classified as LTCG (Long-Term Capital Gains). The tax rate for LTCGs is 20% after indexation.
Things to Consider Before Investment
Given below are the crucial factors that you must consider before investing in these funds:
- It is crucial for you to know where the fund invests. For example, while some funds consist of both Indian and foreign equities, others focus on investing solely in emerging markets. In addition, knowing the fund’s investment strategies will help you assess whether it aligns with your financial goals.
- Before investing in international funds, ensure that the investment keeps the overall risk level of your entire portfolio within the limits you are comfortable with. The international fund should not harm your portfolio’s diversification. Moreover, it must not increase risk by concentrating exposure to a specific asset class.
- Do not forget to consider the geopolitical condition of the region or country that the fund mostly invests in. For example, investing in companies in a politically tumultuous region is not a good idea.
- Make sure you are ready to invest for a minimum of 5 to 10 years. Long investment duration for international funds will help you benefit from capital appreciation.
- Do not forget to check the fund’s expense ratio, which is the cost of managing the fund. The expense ratio of an international mutual fund can be much higher than that of domestic funds. You need to assess whether the expense ratio is justified with respect to the fund’s past performances.
To sum up, there are many types of international mutual funds. These are lucrative investment options as they provide easy access to international markets and ensure currency and geographic diversification. However, investors should assess the portfolio and macroeconomic factors before investing in the best international mutual funds in India.
Frequently Asked Questions
What is the minimum investment amount for international mutual funds?
You can invest in an international mutual fund via SIP (Systematic Investment Plan) with a minimum amount of Rs. 500. The maximum amount depends entirely on the investor’s financial goal and risk-taking ability.
How do international funds normally invest?
International funds can invest in international markets directly. However, these funds can also invest via the feeder route, i.e. they can invest in other funds that invest in those markets. This is achieved through a fund of funds (FoF).
What is the aggregate foreign investment limit in international mutual funds?
SEBI (Securities Exchange Board of India) has mandated that the aggregate limit of foreign investment in international mutual funds should be USD 7 billion.