Best International Mutual Funds in India to Invest in 2023
Mutual funds have now become an attractive investment option across the globe. Most of the major companies around the world are going through a growth phase, and this might be an ideal time for investors to explore international stocks.
Investing in international mutual funds carries risk as it is complicated to track the market movements of every country with the various global and economic changes occurring constantly. However, international mutual funds help you to diversify your portfolio globally.
List of Top Performing International Mutual Funds
Here is a list of the best international mutual funds in India in 2022:
|Fund Name||3-year Annualised Returns*|
|Motilal Oswal Nasdaq 100 Fund of Fund – Direct Plan – Growth||20.19%|
|DSP World Mining Fund – Direct Plan – Growth||19.84%|
|DSP US Flexible Equity Fund – Direct Plan – Growth||17.39%|
|Edelweiss US Value Equity Offshore Fund – Direct Plan – Growth||14.56%|
|Aditya Birla Sun Life Global Emerging Opportunities Fund – Direct Plan – Growth||14.18%|
|PGIM India Global Equity Opportunities Fund – Direct Plan – Growth||12.26%|
|Franklin India Feeder – Franklin U.S Opportunities Fund – Direct Plan – Growth||11.73%|
|Edelweiss Greater China Equity Off-shore Fund – Direct Plan – Growth||9.86%|
|Invesco India – Invesco Global Equity Income Fund of Fund – Direct Plan – Growth||9.73%|
|ICICI Prudential Global Stable Equity Fund – Direct Plan – Growth||9.57%|
*As per the latest update on September 2, 2022.
What Are International Mutual Funds?
International funds are mutual fund schemes that invest in equity and equity-related instruments of companies or entities that are listed outside India. Such funds have the permit to invest in overseas markets. Most of them are fund of fund schemes whose underlying funds invest in foreign markets.
Investments in international funds help to diversify your portfolio on a global scale. You can invest in some of the world’s biggest companies and reap benefits from the movements in stock markets worldwide. They also have the potential to generate higher returns than domestic funds.
Also Read: How to Choose Mutual Funds in India?
How Do International Mutual Funds Work?
Investing in international mutual funds is similar to investing in any other mutual fund. First, you invest money in the domestic currency, and in return, the units of funds will be allocated to you. The fund manager invests the pooled money in the stocks of the companies that are listed on exchanges outside India. The allocation is done in two ways:
- Buying stocks directly from companies and building the fund’s portfolio.
- Investing in an existing international mutual fund with a pre-designed portfolio comprising stocks of foreign companies.
The fund manager can choose any of the options as per his/her investment strategy. Like every other mutual fund, international funds must comply with the rules of the Securities Exchange Board of India (SEBI).
Types of International Mutual Funds
There are a number of international mutual funds available in India for you to invest in. Each of these mutual funds has a different approach to global investing. Based on these approaches, international mutual funds can be classified into four different categories:
- Regional Funds: It is a type of fund that invests in securities of a specific geographical region like Asia, Europe etc. Investors with ample knowledge about the region and who wish to diversify their investment portfolio can opt for this type.
- Global Funds: This type of fund invests in stocks of companies from across the world. These funds leverage opportunities in different markets at the same time. The only motive is to create diversification so that if one market does not perform well, the other market may save the day.
- Global Sector Funds: This type of fund invests in a specific sector in international markets. This will help you invest in particular sectors of your choice. For example, if you are interested in the infrastructure sector, you can invest in global stocks of power, cement and steel companies.
- Country Funds: This type of fund invests in a specific country. Although this limits diversification, fund managers who are experienced with a particular international market can reap substantial returns for the investors.
Who Should Invest in International Mutual Funds?
Mentioned below are people who might try out investing in an international mutual fund:
- It might be suitable for investors who wish to look beyond domestic diversification. Such investors might fetch better returns by investing in international funds and further diversifying their profile.
- The investment portfolio of these funds includes equity securities of global markets. Hence, if you are willing to bear the risk of global equity markets, you can consider international funds.
- If you wish to capitalise on other markets when domestic markets are giving decent returns or struggling, you can try investing in an international fund.
Benefits of Investing in International Mutual Funds
You can invest in international mutual funds in India due to the following reasons:
- Diversification: If you invest in international mutual funds, you will get geographic diversification. This means that if, for example, the Indian economy is not doing that well, the economies of other countries like the US or UK might boom. Therefore, you can avoid losses in the domestic markets and gain profits from investment in other countries.
- Global Market Ownership: By investing in international mutual funds, you can own stocks of global companies. You will be able to invest in prominent companies like Apple, Facebook, etc.
- Currency diversification: When you invest in international funds, your portfolio gets exposure to foreign currencies. Therefore, any appreciation in the value of a foreign currency will be advantageous for you.
Things to Consider Before Investing in International Mutual Funds
Before investing your money in any form of mutual fund, you must consider certain factors. Some factors that you might specifically want to consider before investing in international mutual funds are as follows:
Taxation for International Mutual Funds
Although international mutual funds are equity-oriented, they are taxed like a debt mutual fund. This is an anomaly that differentiates them from other equity-oriented funds.
The profit that you gain from selling your investment is your capital gain. The capital gains you earn after selling your investment are taxed according to how long you have held the investment. The rates of tax as per the holding period are:
- Short Term Capital Gains (STCG) Tax
If the investor holds the international fund’s investment for a period of less than three years, it is considered short term capital gains. STCG is added to the investor’s income and taxed as per the applicable tax bracket.
- Long Term Capital Gain (LTCG) Tax
If the investor holds the investment for 3 years or more, the gains are considered long term capital gains. LTCG is taxed at 20% with indexation benefits.
You can consider investing in international mutual funds if you are looking for portfolio diversification on a global scale. They have the potential to generate higher returns than domestic funds and also offer exposure to foreign markets. However, you should prepare yourself for the associated risks before investing.
Frequently Asked Questions
How much can I invest in foreign stocks?
As per SEBI’s guidelines, all the international mutual funds in India can invest up to $7 billion combined. There’s a separate limit of USD 1 billion for investment in foreign ETFs.
What are the risks of investing in international mutual funds?
There can be a number of risks that you should prepare yourself for if you invest in international mutual funds:
Fluctuation in exchange rate: If there is a fluctuation in the foreign exchange rate and appreciation in rupee, the returns will be adversely impacted.
Concentration risk: International funds with a concentrated portfolio may be riskier than diversified portfolios.
Foreign market risk: People who invest in international funds are exposed to the economic and political risks of foreign economies. The risk is higher if investments are made in markets that lack regulation framework, liquidity and market efficiency.
What is a Fund of Funds (FoF) scheme?
It is a type of mutual fund that invests in other schemes. Fund managers of FoFs invest in other funds instead of purchasing stocks of companies directly.