What are the benefits of investing in international mutual funds?

The post-pandemic rally in the markets globally have made international mutual funds look more attractive. Here is our guide on investing in international funds.

Have you ever wondered that though we live in India, we do use international products and services daily? From our morning alarm to playing your playlist is done wonderfully by Alexa. We shop online via Amazon and especially on Great Indian Festival days. Wear a smartwatch and go for a workout. On the way to the office, you receive a mail on Microsoft Outlook. Moreover, you also be in touch with your childhood friends via Facebook. And how can we forget watching our favourite movies and web series on Netflix? Google is another friend which helps you search for anything, navigate via google maps, watch videos of your taste on YouTube and also most of the personal mails are on Gmail.

If we look around, we are very well surrounded by US technology brands. Not just that, but we use a lot of things in our daily lives which are from global brands. Hence, it does make sense to have some exposure to international companies via international mutual funds.

Benefits of investing in international funds 

• Diversifying country-specific risk

We tend to ignore the country risk linked with our home country. However, it is prudent to factor in such risks while creating a mutual fund portfolio. Country specific risk can be in any form such as natural calamities, epidemics and pandemics, geopolitical issues like war threats, trade wars, etc. Such risks can be diversified by having international exposure.

• Diversifying currency risk

Currency risk may not pose a concern for investors spending in their home country. However, if you are planning to spend in foreign currency then may it be for kids’ education abroad or heading for a world tour, depreciation in domestic currency would have an impact. Say, for instance, you are saving for your kid's higher education in some university in the US, then you would be saving in domestic currency, but would pay its fees in dollars. Therefore, here investing in mutual funds dedicated to the US region will help you diversify your portfolio against the depreciating rupee.

• Exposure to global trends

When it comes to the Indian stock market, it is still very well dominated by companies in sectors such as banking and finance, oil and gas, traditional IT companies, Fast Moving Consumer Goods (FMCG), pharmaceuticals, automobiles, cement, etc. On the flip side, developed economies are more tilted towards technology-centric companies. The top five companies by market capitalization in the S&P 500 index are all technology companies.

Below are the top 10 constituents of the S&P 500 index.