International Funds have become an increasingly popular investment choice for Indian investors seeking global exposure and portfolio diversification. With rising awareness and improved accessibility, these funds offer the opportunity to invest in markets outside India, such as the U.S., Europe, Japan, or emerging economies. In this article, we will explore what International Funds are, their definition, benefits, importance in a portfolio, and the best options for 2025.
Table of Contents
Definition of International Funds
International Funds are mutual funds or Exchange-Traded Funds (ETFs) that invest in companies located outside the investor’s home country. For Indian investors, this means putting money in foreign stocks, bonds, or a mix of both through fund houses based in India.
These funds can either invest directly in international markets or through feeder funds that route investments into foreign mutual funds. Unlike global funds, which can invest in both domestic and foreign markets, International Funds exclusively target non-domestic markets.
Types of International Funds
There are several types of International Funds, each catering to different risk appetites and investment goals:
- Regional Funds: Invest in specific regions like Europe, Asia-Pacific, or Latin America.
- Country-Specific Funds: Focus on one country, such as the U.S. or China.
- Thematic Funds: Target specific sectors globally, like technology, healthcare, or ESG (environmental, social, governance).
- Global Index Funds: Track major indices such as S&P 500, NASDAQ-100, etc.
- Feeder Funds: Invest in a parent fund based in a foreign country.
Benefits of Investing in International Funds
- Diversification: International Funds reduce country-specific risk by spreading investments across multiple economies.
- Currency Advantage: Gains can increase with favorable currency fluctuations, especially when the Indian Rupee depreciates.
- Access to Global Brands: Investors gain exposure to companies like Apple, Google, Tesla, Amazon, etc.
- Innovative Markets: Some foreign markets offer access to industries or innovation not yet prominent in India.
- Long-term Growth: Developed economies tend to offer more stability, while emerging markets can offer higher returns.
Importance of International Funds in a Portfolio
Including International Funds in your portfolio is vital for these reasons:
- Risk Management: Helps manage geopolitical or market-specific risks by distributing assets across borders.
- Macro Trends Exposure: Taps into global macroeconomic trends like AI, green energy, and automation.
- Economic Cycle Balance: Indian and global markets often don’t move in tandem, smoothing out overall returns.
Factors to Consider Before Investing
- Risk Appetite: Some international markets are volatile; match fund choice with your risk profile.
- Expense Ratio: International Funds may carry higher fees due to currency and legal complexities.
- Currency Risk: While depreciation can help, appreciation of INR may reduce gains.
- Taxation: Tax treatment is different from domestic funds; long-term capital gains taxed at 20% with indexation.
- Fund Performance: Always check historical performance, fund manager reputation, and global market trends.
Tax Implications of International Funds
International Funds are taxed as debt mutual funds in India:
- Short-Term Capital Gains (STCG): Taxed as per the investor’s income tax slab (holding < 3 years).
- Long-Term Capital Gains (LTCG): Taxed at 20% with indexation (holding > 3 years).
Understanding these tax implications can help in financial planning.
How to Invest in International Funds
- Research: Understand different international funds and their focus regions or sectors.
- Choose a Fund: Select a fund based on your risk appetite, investment goals, and past performance.
- Open an Account: Use your existing mutual fund or brokerage account, or open a new one that offers international funds.
- Check Regulations: Verify any foreign investment rules applicable in your country.
- Decide Investment Amount: Determine your budget for investing in international funds.
- Start Investing: Invest via lump sum or SIP (Systematic Investment Plan) for disciplined investing.
- Monitor Performance: Regularly track the fund’s returns and global market trends.
- Review Portfolio: Rebalance periodically to align with your goals.
Top Performing International Funds in 2025
Here are some of the best International Funds worth considering for 2025:
- Motilal Oswal Nasdaq 100 FOF – Invests in top US tech stocks with long-term growth potential.
- Franklin India Feeder – Franklin US Opportunities Fund – Diversified US equity exposure with high-quality growth stocks.
- ICICI Prudential US Bluechip Equity Fund – Focuses on stable large-cap US companies.
- Edelweiss US Technology Equity Fund of Fund – Tech-focused, ideal for tech-savvy investors.
- DSP Global Innovation Fund of Fund – Targets innovative global companies with disruption potential.
- HSBC Global Equity Climate Change Fund – ESG-focused with long-term sustainability themes.
(Please review recent performance and consult with a financial advisor before investing.)
Risks Involved with International Funds
- Currency Fluctuation: A major risk factor that can impact returns.
- Geo-political Issues: Trade wars, sanctions, or political instability can affect specific regions.
- Liquidity Risk: Some funds may be harder to exit depending on market conditions.
- Regulatory Risk: Changes in foreign country regulations can impact fund operations.
Who Should Invest in International Funds?
- Investors with a medium to high-risk appetite.
- Those looking to diversify beyond Indian equities.
- Long-term investors seeking global exposure.
- NRIs or globally mobile professionals who understand foreign economies.
Tips for Smart Investing in International Funds
- Start Small: Begin with a small amount and gradually increase allocation.
- Regular Review: Keep monitoring fund performance and global market conditions.
- SIP Route: Use Systematic Investment Plans to reduce volatility.
- Stay Updated: Keep an eye on forex trends and international economic policies.
International Funds offer a powerful tool for Indian investors to diversify, access high-growth sectors, and hedge against local risks. While they come with their own set of challenges like currency risk and taxation, the potential rewards can make them a worthwhile addition to a balanced portfolio. Make sure to assess your risk profile, understand the tax implications, and invest through trusted platforms.
If you’re looking to go beyond domestic equities and add a global edge to your investments, International Funds might just be the smart move for 2025.
Frequently Asked Questions (FAQs)
Q1: How to manage international funds?
Manage international funds by diversifying regions, monitoring currency risks, reviewing performance regularly, and aligning with your long-term financial goals.
Q2: What is an example of an international fund?
An example of an international fund is the Motilal Oswal Nasdaq 100 FOF, investing in top U.S. technology companies.
Q3: Will international stocks do well in 2025?
International stocks may perform well in 2025 due to global recovery, tech growth, and diversification benefits across developed markets.
