Two ways to scan International mutual funds are by looking at funds geographically and sector basis
If we analyze the data, India’s share of GDP is just 3% of Global GDP, so we have around 97% untapped market to invest
Under the current market situations, buying foreign equity, ETF, or investing in International mutual funds can be a great way to diversify your portfolio. But, while making such investments it is crucial to understand two aspects: what to buy and also how much to allocate.
Answering the first part of the question, personal finance coach Paritosh Sharma suggests: There is a reason to say owning a few stocks from the developed market can help strengthen your portfolio.
It is observed that stock indices of different countries do not move in tandem. For example, 2015 was the negative year for Sensex but the European and Japanese market closed in green. In 2017, the Sensex delivered a great return of 28%, but China’s Hang Seng surpassed it by providing a return of 36%. However, most often it is observed that the markets such as the US often fall far less than emerging markets like India when a global crisis hits.
When the Tech bubble busted in 2000, the Sensex lost 21% but the US indices Dow Jones witnessed a fall of only 6%. Similarly, in 2008, the Sensex lost 52 percent but the US markets just corrected by 34%.
Investing in US-based companies' stocks helps in better diversification of your portfolio. This is because when macro risk comes into the picture - like escalating oil prices, global rate hikes or FPI pullouts from emerging markets -investing in overseas stocks, particularly dollar-denominated ones, helps you convert the challenge of rupee depreciation into an investing opportunity to earn better returns, Sharma adds.
Meanwhile, you should stay off the emerging market equities like China and Japan because they behave very like Indian counterparts. So does not bring diversification.
Now apart from Geography, another thing to consider is the sectoral factors. Some international funds invest in companies in one particular sector or specific to one theme like gold funds, real estate funds, agriculture funds. These funds are ideal for investors who have already invested in plain vanilla international funds and domestic equity or funds, but now want to buy something more specific.
Other than that, there are Funds of Funds. These funds collect the corpus from the domestic market and invest in offshore funds of the same parent company. In such cases, the fund manager sits in India to decides which stock to buy and hold.
Sharma says, "It is always good to go for a fund for which the fund manager is managing it from that country itself. He will have a better understanding of the economy and it is easy for him to monitor the market."
Answering the second part of the question, Sharma says: If we analyze the data, India’s share of GDP is just 3% of Global GDP, so we have around 97% untapped market where we can look upon for investment.
So, the answer will depend on how much risk you can take with your current portfolio and the period of your investment tenure.
By investing in international funds you can also gain exposure to sectors in which you don’t get exposure in Indian markets, such as defense equipment, global e-tailers, and so on, then giant corporations and big techs like Amazon, Apple, Facebook etc. So, if you are looking for diversification, International funds are worth the risk! Sharma concludes.