Some mutual fund (MF) houses have international funds and by investing in these, you can invest across the globe.
These predominantly invest outside the country. While some invest directly, there are some fund of funds that take indirect exposure. The choice of countries as well as the kind of assets in which a fund invests depends on the scheme’s investment mandate. For instance, some can invest in any country, while others are restricted to particular countries. Similarly, some can invest across various asset classes such as debt and equity, while others can invest only in specified assets such as gold.
Also, some schemes have an upper limit on their international exposure. For instance, Birla Sun Life International Equity Plan B invests up to 35% of its total corpus in international markets.
Conventional wisdom says that not all countries see their markets rise every year. There are years when a foreign market may rise more than the Sensex or Nifty. These funds basically invest in such economies in order to diversify their risk. Also, some foreign funds aim to invest in globally competitive companies that are otherwise not listed in the Indian market. For instance, Apple and Microsoft.
Apart from the regular risks of liquidity and default that all MFs carry, international funds have two additional risks attached—country and currency risks. For instance, due to the recent earthquake and tsunami, investors in Japan lost heavily. Schemes invested in Japan may have seen erosion.
Change in the currency exchange rate can determine your return. Suppose you invest Rs 1 lakh when $1 is equivalent to Rs 45, the total investment would be $2,222. Now let’s say the scheme gives a 10% return and the corpus grows to $2,444 or Rs 1,09,980. But if rupee appreciates and $1 is equal to Rs 40, the corpus will be down to Rs 97,760.
WHAT TO DO
The returns provided by the Nifty over the last three years exceed that of any international fund during the same period. However, in the last one year, many schemes have outperformed the Nifty; the Indian market on the whole has underperformed its global peers.
The long-term prospect of India remains bullish, so investing in the domestic market may be more prudent.