International Mutual Funds

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Schemes that invest a part or whole of their corpus ,either directly or through overseas investments funds ,in securities of companies listed abroad are called international funds.


There are many variants within International Funds. At the most basic level there are schemes with over 65% in Indian equities. These are classified as equity schemes and taxed accordingly, while those with less than 65% in Indian equities are classified as non-equity and hence taxed on the same lines as debt schemes. Further more schemes in this space can be either direct equity schemes or FOF (Fund of Funds). FOFs are typically more expensive structures than regular funds as the investor pays fees/expenses to both the FOF manager as well as to the schemes
that form part of the portfolio.

Many schemes are also sector specific. They may invest in only commodity or bullion funds that invest in overseas markets. Thus a AIG World Gold or DSP World Gold fund invests your money in schemes floated by their parents overseas. These overseas funds in turn invest in gold mining companies listed globally. There are commodity funds,agriculture funds, infrastructure and bullion funds with specific themes. There are also country specific schemes or region specific funds. For example South East Asia (ex Japan) or Emerging markets like the BRIC basket (including India) or even a Latin America fund are region specific schemes while among country specific funds, China seems to be a favorite amongst Indian Fund houses. ING has a real estate fund that invests in it parents Global Real estate fund. This overseas scheme makes investments in REITS abroad and is hence a good opportunity for retail investors to diversify into uncorrelated real estate abroad with minimum hassles.


As a thumb rule most financial planners would advise you no more than five different schemes in your portfolio. Of this an international fund could be given some allocation .Since you would not like to needlessly add too many schemes to your existing portfolion it is important to choose your international scheme carefully. Any one diversified global fund should be sufficient to give you required diversification of overall portfolio and allow you to enjoy global investment opportunities at the same time.

Remember that reduced risk comes from the premise that not all economies and their securities markets are corelated and will hence not go up and down at the same time. For the same reason it is pointless trying to compare past returns of 100% Indian equity schemes with an international fund. The latter is meant for risk diversification. India has been the best performing markets in this ongoing rally and it is possible that this good run may come to a halt and other markets may catch up.


The fundamentals of investing do not change in the case of International Funds. Country specific, sector specific, or theme specific funds should be avoided. A diversified international equity basket is the only real investment by which you can achieve the goal of reduced co-relation of returns and hence reduced risk. Needless to say reading the Key information Memorandum and being aware of scheme objectives is important. The name global in the scheme name does not necessarily mean that it is an international fund. Schemes like SBI Global Fund or LNT Global equity are actually 100% invested in Indian Equity while many other schemes have a nominal 15% to 30% portfolio allocation to international equities. Check with your advisor for a scheme that suits your portfolio requirement.

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