Achi news desk-
International mutual funds invest in traded stocks and debt securities in foreign markets
The total assets managed, or the total assets held by the mutual fund industry, have crossed the NIS 50 million mark. This clearly speaks to the growing trust that investors place in mutual funds. Mutual funds provide investors with the opportunity to invest in different types of assets. Mutual fund programs invest in various assets, from equity to debt, gold and silver. In addition, there are specific targeted programs that provide for goals such as retirement planning and children’s education. Moreover, if you want to invest in foreign markets, you can also do so through international mutual funds. So let’s see what international mutual funds are and how they work?
International funds are mutual funds through which investors can invest in companies of other countries. This means that an investor residing in India can invest in shares of US or UK companies, all through international funds.
These funds invest in traded shares and debt securities in the foreign markets. In addition to this, you can also invest in exchange-traded funds (ETFs), which invest in stocks traded on foreign exchanges. These are called offshore ETFs. There is also an overseas category of Fund of Funds (FoF), where a minimum of 95% of the assets are invested in foreign funds.
Why should you include international funds in your portfolio?
One of the ways for an investor to reduce the risk in his investments is to diversify his investment portfolio. For this purpose, investors invest in different types of funds. There may be a situation where the local economy is not doing well, but a foreign economy is doing better. In such cases, investors can benefit from investing in international funds. It helps them in portfolio diversification.
How does the investment work?
Investing in international mutual funds is not very different from buying units of local mutual funds. You invest in rupees and in return receive units of international funds. The plan you invest in will invest even more in stocks listed in a foreign currency. This allows you to participate in the development of foreign economies as well. For investors in India, there are various options in international funds based on countries, themes, sectors and technology.
What do RBI regulations say about international funds?
As per RBI regulations, domestic mutual funds can invest up to $7 billion in foreign stocks. In addition to that, they can invest up to a billion dollars in ETFs. As this $1 billion investment limit is coming to an end, SEBI has directed mutual fund industries to stop new subscriptions to foreign ETFs from April 1, 2024.
Why is there a need for a limit?
By setting a limit on investments in international funds, RBI aims to maintain balance of payments balance. The Reserve Bank of India is trying to limit the flow of foreign currency for the sake of the stability of the Indian currency. Therefore, international mutual fund schemes will also have to limit their investments. However, till SEBI issues separate guidelines, investment in foreign securities, excluding foreign ETFs, may continue.
What do the experts say?
According to Hemant Rostagi, CEO of Wiseinvest, there are still opportunities for investors to invest in foreign stocks through funds. Those who have invested in international funds within the specified limit and in markets with good prospects should continue investing.
How many returns did these funds generate?
Talking about returns, till April 5, 2024, foreign ETFs gave an average return of 38.8%, 25.2% and 16.4% in 1, 3 and 5 years respectively. At the same time, the return on international funds was 24.8%, 5.8% and 10.3% respectively.
How much tax is imposed on profits in such funds?
When it comes to taxes, it is essential to compare equity investments. Funds that have invested less than 35% of their assets in capital will be taxed on the profits generated by the investor, based on the tax schedule applicable to them.
If the fund has invested 35% or more in equity, it will be considered an equity oriented fund. A uniform tax rate of 10% will apply to profits from equity. However, a profit of up to Rs. 1 lakh in one financial year is tax exempt.
How much risk is involved?
There is always risk in investing in equity around the world. Nevertheless, investors in international investments should be cautious about risks related to the economy, politics and tax regulations of that country. In addition, since the investments are made in the currency of that country, investors also bear the risk associated with currency fluctuations.
Published: 20 April 2024, 10:00 IST
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