By Siddharth Alok
Recently I was reading a quote from a prominent fund manager, who said when she started her journey, 1 dollar used to cost Rs. 12. We have come a long way since then, and while we can discuss all about whether it is good for the economy or not, the point isn’t that. The point is that it is very much a reality, and we must live with it. In 5 years alone, the USDINR pair has appreciated by 20.18%, indicating we need assets which can help us protect our capital. Just last week, one more US-tech company, crossed $1 trillion market capitalization, this gives round of whether we Indians can own them?
This is where international mutual funds come into play. They refer to funds invested in foreign companies. Investing in international mutual funds from India is like investing in any other mutual funds, only the money is in stocks of companies listed outside our shores. Fund managers do so by investing in international ETFs and indices too.
Advantages of international investing
We live in a global economy, wherein the world is going through tectonic shifts with changing capabilities, therefore, while our economy can struggle a bit other economy can perform simultaneously. Thus, having relevant exposure becomes important.
While our companies are stewards indeed in their field, they are relatively smaller compared to their foreign counterparts. Also, with many new industries coming up, having global ownership helps as these companies are more prone to exploit the prevalent opportunities.
While we can keep on talking about the international funds, domestic funds are no less. We have fund managers who have delivered returns over a long period of time across timeframes consistently. And while spotting a multibagger stock can be difficult, we have domestic mutual funds which spotted a few 100 baggers themselves. Therefore, for starters, we should invest in domestic funds first. Once we have devised our financial plan we should start allocating in offshore funds.
Talking from a pure tax perspective, from 1st April onwards, these funds are subjected to higher taxation and will be treated as non-equity funds, meaning, gains from all mutual funds with less than 35% exposure in domestic equity will be directly added to investor’s income and taxed at their tax slab and no indexation benefits are applicable.
Therefore, it becomes important that instead of going after a product we know if it is right for us. While there is no rule as such, having 15-20% allocation is good to go for international funds. Thinking long term helps as it just like any equity fund takes time to deliver meaningful results. Allocate only if you have a high-risk appetite, as you are taking exposure in an align country, which can be subject to uncertainty. Finally, it should help you meet your goals. We all saw running after fad in late 2021 can get you in trouble. Investors should resist the urge to invest solely for the sake of it. Sticking to long-term investment plans and not succumbing to impulsive decisions helps.
(Author is Senior Manager & Investment Counsellor, Epsilon Money Mart)