1. What are Global Mutual Funds?
As described above, a Global Mutual Fund is an investment tool that allows you to invest in international markets. Simply put, a Global Mutual Fund can be described as a mutual/exchange-traded fund which primarily invests in companies/enterprises which are spread across the world.
2. Are Global Mutual Funds the same as International Funds?
No! And here is an important distinction that every investor should understand. An International fund only invests in foreign markets and has no investment in the investor’s home market.
A Global Fund, on the other hand, will invest in all available markets; including the investor’s own country.
For instance, if there is a trading company which invests in markets across Asia and the Middle Eastern regions, and still has a certain investment set aside for the Indian market, then it would function exactly like a Global Mutual Fund. If, however, this trading company were to invest in all countries across the globe except for India, we would call it an International Fund.
3. The Benefits of Investing in Global Mutual Funds
Global Mutual Funds are great for investors who are looking to diversify their portfolio. Diversification helps in risk management, and by investing in multiple markets you can earn high profits. The time period for investing in Global Mutual Funds is typically more, hence making it a suitable candidate for long-term investments.
4. Features of Global Mutual Funds
Some of the distinguishing features of Global Mutual Fund are highlighted below:
The main objective of investing in a Global Mutual Fund is to diversify one’s investment portfolio. These funds invest in multiple securities in different countries, thus creating a wide array of investment instruments at one’s disposal.
b. Risk factor
When you invest in international markets, the risk depends on country-specific policies and market conditions. Investing in stable markets reduces the risk factor.
c. Currency factor
Fluctuations in the value of an international currency can have a huge impact on the performance of a Global Mutual Fund, but since these are not very frequent occurrences, the risk is not that high.
A global fund functions as a hedge against inflation.
Returns offered by a Global Mutual Fund could vary, owing to multiple parameters like currency exchange, global politics etc.
Most global funds are long-term funds.
5. How are these funds taxed?
It is important to remember that all international funds are taxed as if they were non-equity funds. Hence, gains from international funds are taxed at the marginal rate if they are sold within three years from the date of purchase. The gains realized from the sale after three years are eligible for indexation benefits in the year of sale (20% with indexation and 10% without indexation).
6. How are these funds structured?
Depending on the sector that the funds invest in and the mode of investing, global funds can be structured according to the following ways:
a. Depending on the mode of investment
i. Funds that invest directly
These are funds which are directly handled by the local fund manager. Instead of relying on a fund manager who lives offshore, your local fund manager makes sure to look after your portfolio themselves.
ii. Funds that invest indirectly
These funds are known either as feeder funds— because they pool in money from local investors and then transfer the corpus to the parent fund which is managed offshore— or pure fund of funds—these are funds that invest the investor’s money in a basket of offshore funds.
iii. Funds that invest only a portion in foreign equity
These funds have a mix of both domestic and global funds. Hence, they are better choices for the moderate risk taker as they provide limited exposure to foreign equities while maintaining focus on the domestic market and thus enhance your portfolio’s tax efficiency.
b. Depending on the region of investment
i. Region-specific funds
When opting for global funds, you can choose to invest only in a specific region or country. This works well if the region/country of your choice has the potential for high growth, but to achieve this you would need a deep understanding of the region to capture the growth and exit at the right time.
ii. Funds that invest across the globe
These funds are more flexible as they are not restricted to a particular region and can offer more diversified exposure to investors. They are generally handled by fund managers who have the necessary expertise in handling an investor’s portfolio and can identify and monitor opportunities worldwide.
c. Depending on theme
These funds invest in specific themes or growth opportunities across the globe. You can choose to invest in broad themes or sectors like commodities, energy, gold, agriculture, mining, and others. These funds are great to invest in when there is a growth period, and you can have access to segments which may not be available for investment in the domestic market. However, make sure that your portfolio is not overloaded with such investments as restricted exposure to a single theme can put investors at risk.
7. Why should you invest in Global Mutual Funds?
Global Funds can be a great asset to your investment portfolio. The pros and cons of this are listed below:
a. The Pros
i. Since you are investing in mutual funds from a different country, your investments are insulated against the market ups and downs in your own country
ii. Investing in mutual funds in the fastest growing markets across the globe will help you earn rich rewards
iii. Exposure to foreign currency can help you earn more and meet your future requirements
b. The Cons
i. Your investments will be subject to geopolitical and socio-economic factors in the country or region where you invest. So, market risks cannot be negated completely
ii. Since you will be investing in rupees and the exposure will be in a foreign currency, the fluctuations in the exchange rate for that particular currency can either boost or hurt your fund returns.