InCred Wealth October 6, 2020
International Funds – Let your wealth travel
There is no denying the fact that globalisation is for real and is here to stay. Several major international brands have become an integral part of our lives and the Indian consumers are getting more and more adventurous in their life choices. Whether it is clothing, food, travel or entertainment, there is empirical evidence of global brands creeping into our lives and emerging as major influencers. Given the scenario, it is time the same opportunities are available to Indian investors looking to diversify their investment portfolios by investing in markets across the world.
Let us break down the benefits and scope of these international investment opportunities though international Mutual Funds.
Why Investment in International Funds is the Next Big Thing?
Participate in the Success Story of Global Brands
Investment in international funds, depending on which ones you select, allow you to share the success of high-flying global market leaders like Amazon, Netflix, Microsoft, Louis Vuitton, Mastercard, Alibaba, Apple, Google, Ferrari and innumerable others big conglomerates. It promises great growth potential.
Unlike typical mutual funds which invest only in companies listed in India, International funds can invest across the globe. One can invest through international mutual funds based in India which are typically also referred to as Feeder Funds or Funds of Funds (FOFs). Feeder funds are domestic mutual funds that invest in overseas mutual funds. The global funds, in turn, invest in companies in their respective markets. Other options include the S&P 500 ETF on the NSE (which is essentially a mutual fund) or directly through the LERMS route into global mutual funds based abroad.
Growing Global Markets
Even though there has been strong growth in Indian markets, some international markets like the US have beaten the Indian markets on a decadal basis due to its recent outperformance. The below table shows ‘CY returns from 2017’ and ‘CAGR returns from 2010 for Nifty 50 Index in INR’ terms and ‘S&P 500 Index in USD’ terms.
| 2017 | 2018 | 2019 | YTD 2020 | CAGR | |
|---|---|---|---|---|---|
| NIFTY 50 Index | 28.6% | 3.1% | 12.0% | -6.4% | 7.6% |
| S&P 500 Index | 19.4% | -7.0% | 30.0% | 8.3% | 11.2% |
Source : Bloomberg YTD data as on August 2020
Greener Pastures
Bank interest rates in India are at all time lows, and don’t even cover inflation. It is natural for you as an investor to then consider alternate investment avenues which can give you that extra return whether it be through bullion or real estate or bonds or international funds which give exposure to global markets.
Diversification is Key
InCredible India is full of surprises with its diverse democratic landscape, ever tense political climate and now a tough geo-political situation with our neighbours. A geographical diversification and investing in multiple economies act as a buffer when one country’s economy hits a roadblock. It allows you to keep your funds safe and earning good returns regardless of local hiccups.
Protection Against Currency Fluctuation
Apart from the above reasons, investing in companies, as an example, in the US will not only allow you to participate in their growth story but also protect you against currency fluctuations like the falling rupee, with added benefits from dollar appreciation. International diversification provides a hedge against a falling rupee at a portfolio level. When an Indian investor invests abroad, she gains when INR depreciates vs the currency in which she has invested. This is contrary to the effect of a depreciating rupee on her domestic portfolio which will suffer in this scenario. On a CAGR basis, INR has depreciated 4% vs USD over the past decade. This gets added to the returns in case of international investing.
| 2017 | 2018 | 2019 | YTD 2020 | CAGR | |
|---|---|---|---|---|---|
| USD/INR | -6% | 10% | 2% | 3% | 4% |
Source : Bloomberg YTD data as on August 2020
Transparent Transactions
High liquidity, i.e., the choice to exit whenever you want and instantly cash out and transparency – performance information about all international funds and where they invest are declared daily – are some more benefits of investment in international funds. It is a risk-diversifying, transparent investment vehicle with high liquidity and returns potential – qualities which are ideal for any investment.
Though there are many funds in this arena, here are some interesting names with robust fundamentals.
- Franklin US Opportunities Fund – A diversified fund providing exposure to the US economy.
- Edelweiss JP Morgan US Technology Fund– A thematic fund which provides exposure to innovative technology stocks in US.
- PGIM Indian Global Equity Opportunities Fund –A globally diversified fund which invests in structural growth stories by maintaining a relatively concentrated portfolio of 30 to 40 stocks.
As with most equity funds, international equity funds also come with risk and retail investors should consider their risk appetite and adopt a minimum of 3 to 5 year or longer time horizon when investing in these.
For more information email us at contactus@incredwealth.com
Share
Read More
December 04, 2024
Unlock the potential of unlisted and Pre-IPO equities with insights and discover how early investments in companies like Tata Technologies and Nazara Technologies can yield significant value, along with the risks to consider.
September 04, 2024
Value investing focuses on buying stocks that are undervalued by the market. Investors analyze a company’s fundamentals, aiming to buy at a discount and hold until the stock reaches its true worth.
June 21, 2024
Investment Strategies 101 provides an overview of various approaches to growing wealth, from value investing to growth and income strategies. Each method suits different goals and risk tolerance levels, helping investors make informed decisions.
April 05, 2024
The private market offers unique investment opportunities with high potential returns, but its complexity and lack of transparency make it difficult to navigate. This combination of high reward and mystery draws sophisticated investors.