Scenarios look a bit grim. The Indian market is facing several problems. There have been outlook downgrades by rating agencies. Many banks too, have been downgraded. Though inflation has eased compared to the last few months, even this aspect does not seem to be encouraging enough. To top it off the rupee is also on a downward slope, which has put further pressure on the investment climate.
Additionally, regulatory bodies have been active. This has resulted in cancellation of licences, imposition of penalties due to cartels, and adverse observations. While this is a welcome step, it has not helped improve the investment sentiments in our country.
All of these factors have impacted stock markets. The reflection of policy paralysis can be seen in the market where uncertainty is high and the indexes are range bound. In such a scenario, investing in mutual funds offers a better option especially the ones that invest in the foreign market.
While these funds are not risk free, they offer another avenues for investment and diversification of assets. International mutual funds or overseas funds are portfolio of equities, bonds, and money market securities traded in foreign market. Recently these funds have gained popularity because of the diversification they offer.
They offer many benefits such as taking advantage of emerging markets, commodities boom, or business cycle of different markets.
Just like domestic funds, international mutual funds offer many varieties such as commodity based fund, thematic fund, country based, sector based, and others. Moreover, these funds are managed by experts in international markets. Many fund houses have international mutual funds in their portfolio.
Every reward comes with the associated risk. While international mutual funds open up new avenues for diversification, they also expose investors to few risk factors.
First, international mutual funds invest in foreign markets and hence most of the investors will not have any idea about the business environment, changing business scenario, and regulatory consequences. This can be a major disadvantage, especially for active mutual fund investors who keep a keen eye on movements. In case of international mutual funds, they may find themselves helpless.
Moreover, many of these mutual funds are new in nature and hence may not have any history of returns.
Second, investors may not get enough time to react to news which impact mutual funds and its NAV. There will be a time lag between when the policy decisions are announced in foreign countries and when it reaches to investors to make right decision.
International funds are also prone to global political situation. While domestic market provides a better defence against any adverse movement, international politics and business are more difficult to understand.
There may be possibility that a fund focused in China may be impacted because of war in Middle East. These events are difficult to predict as well as impossible to factor in your investment plan.
Indian mutual fund industry offers many choices as far as international mutual funds are concerned. Almost all the fund houses such as Birla sun life, HSBC, DSP black rock, Fidelity, Tata, ICICI Prudential offer international mutual funds. Invest wisely and take advantage of the diversification.