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International mutual funds have gained much popularity with Indian investors in the last 2-3 years. These international funds serve two advantages in terms of a) diversification and b) performance alpha – which augurs well with investors in India. In this video, ETMONEY’s Shankar Nath explores the many facets of investing abroad including different structures, styles and type of international funds. We also look into some strategies that one can employ when investing internationally and some specific red flags that one needs to watch out for
What’s covered in this video?
00:51 Definition of International Mutual Fund
01:44 Structures of International Mutual Funds
06:56 Investing in Specific Geographies
10:38 Different Styles of Investing
13:42 How to Invest in International Funds
👉 Link of worksheet which includes specifics of 44 international funds : https://cdnblog.etmoney.com/wp-content/uploads/2021/04/ETMONEY_International20Mutual20Funds-1.xlsx
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👉 DEFINITION OF INTERNATIONAL MUTUAL FUNDS
The SEBI definition of an international equity fund is one where over 80% of the scheme’s assets are invested in equities or equity-linked assets of a foreign country
By that definition, there are currently 44 different international funds that manage a little over ₹15,000 crores in assets
👉 STRUCTURE OF INTERNATIONAL FUNDS
From the entire universe of 44 international funds, the Indian AMCs themselves manage only 7 funds while the rest 37 funds are managed under a fund of funds structure
A fund of funds (FOF) is basically a mutual fund that invests in other mutual fund schemes in a feeder fund setup.
For example – the recently launched SBI International Access US Equity Fund invests the money collected from Indian investors in the Amundi US Pioneer Fund. Other AMCs have signed up similar arrangements with DSP Mutual Fund investing in Blackrock funds, Edelweiss Mutual Fund in JP Morgan Funds, Axis Mutual Fund in Schroders and Aditya Birla AMC investing in Julius Baer funds. Fund houses like Franklin Templeton, Invesco India, PGIM India, Principal India and HSBC India have international parents and the Indian arms tend to align with their foreign parents
One important point that needs further examination with FOF setups is the expense ratio of international fund schemes. Always remember, both funds i.e. the feeder fund and the underlying fund have expenses which needs to be paid for by the investor.
👉 INVESTING IN SPECIFIC GEOGRAPHIES
International mutual funds offer many options today in terms of geographies like Japan, China, the ASEAN countries, Europe, Brazil and ofcourse, the United States. And then if you don’t want to be picky about choosing a particular country, one can always opt for funds which have a mandate to invest globally.
👉 DIFFERENT STYLES OF INVESTING
There are four considerations to look out for:
1. Theme or sector of the international fund
2. Growth fund or value fund
3. Market capitalization
4. Actively managed or passively managed fund
👉 HOW TO INVEST IN INTERNATIONAL MUTUAL FUNDS?
International funds dispense a number of advantages which include diversification, a weak correlation to the Indian markets, a boost in returns due to currency depreciation and some interesting investing ideas which are generally not available with domestic equity funds
From a pure performance perspective, about 75% of the international funds have beaten the Nifty 50 over the last 5 years
Here are some steps one can take in the selection of an international mutual fund:
1. Identify the sub-category of international funds that will be a best fit for you
2. Geography or location
3. Performance of fund
4. Expense ratio
5. Scheme characteristics
And our final suggestion will be for you to continue using the systematic insurance plan or SIP process of investing for international mutual funds like one would generally do with domestic equities.
#ETMONEY #InternationalMutualFunds #InternationalFunds
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How International Mutual Funds, How to Invest in International Mutual Funds the right way?.
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