homepersonal finance NewsExpert advises savvy investors to consider international mutual funds for diversification and currency hedging
Expert advises savvy investors to consider international mutual funds for diversification and currency hedging
International mutual funds can be a useful tool for diversifying an investment portfolio and gaining exposure to global markets. However, investors should carefully research and consider their investment objectives, risk tolerance, and the specific fund's characteristics before investing in international mutual funds.
According to Kalpesh Ashar, a financial expert at Full Circle Financial Planners, seasoned investors should consider adding international mutual funds to their investment strategy. These funds not only offer diversification across foreign markets but also serve as a safeguard against currency fluctuations.
“International mutual funds not only allow for overseas diversification but also act as a different currency hedge. It also helps people who want to have financial goals abroad. The other aspect is the global investment opportunities that it creates.
We are an emerging market, but a lot of work is being done in the developed markets, lots of new avenues are coming up, and lots of new themes are coming up like climate change and artificial intelligence (AI), etc. So evolved investors should look at international mutual funds,” Ashar said in an interview with CNBC-TV18.
For those unfamiliar with them, international mutual funds are investment vehicles that enable both individuals and institutions to place their capital into a well-diversified portfolio of stocks, bonds, or other securities from countries outside their home nation.
Skilled fund managers or investment firms oversee these funds, granting investors the opportunity to gain exposure to a broad spectrum of international markets and assets.
However, Ashar cautioned that individuals should exercise caution when allocating their portfolio to international funds, advising that it should not exceed 10-15 percent.
This caution is warranted due to the inherent risks associated with international investments, such as currency volatility, political instability, and economic disparities across different countries.
“There are risks involved with investing in international funds as well. Investors are subject to lot many geopolitical risks and also the currency volatility. Moreover, investors are completely at the beck and call of a foreign fund house or a foreign fund manager per se.
In India, we know the fund managers who are managing the money and so we do that type of research that who is the person handling the money. So that is why we say that international funds should be up to 10-15 percent of your portfolio,” Ashar said.
From a taxation perspective, investments in international mutual funds are subject to tax treatment similar to that of domestic debt or fixed-income funds.
Watch the video for the entire discussion.
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