Should International funds be part of your portfolio? Consider Pros & Cons

International funds, also known as global funds, are mutual funds that invest in companies located outside of the country in which the fund is based.

In India, investing in international funds can be a way to diversify your investment portfolio and gain exposure to different markets and currencies.

However, it’s important to understand the potential benefits and risks before adding international funds to your portfolio.

PROS

1. Diversification:

One of the main advantages of investing in international funds is diversification. By investing in companies located outside of India, investors can reduce the risk of their portfolio being overly exposed to the Indian market.

2. Exposure to developed markets:

International funds provide investors with exposure to developed markets such as the United States, Europe, and Japan, which have a history of strong economic growth and stability. This can provide investors with an opportunity to earn higher returns.

3. Exposure to different currencies:

International funds also provide investors with exposure to different currencies, which can help to hedge against currency fluctuations in the Indian Rupee.

CONS

1. Risk of currency fluctuations:

However, the exposure to different currencies also comes with the risk of currency fluctuations. The value of your investment can be affected by changes in currency exchange rates, which can lead to potential losses.

2. Political and economic risks:

International funds also come with the risk of political and economic instability in the countries in which the companies are located. This can lead to uncertainty and potential losses.

3. Higher fees:

International funds can also come with higher fees, such as currency conversion fees and international transaction fees, which can eat into the returns of your investment.

4. Limited options:

The number of international funds available to Indian investors is relatively limited, which can make it difficult to find a fund that aligns with your investment goals and risk tolerance.

In conclusion, investing in international funds can be a way to diversify your portfolio and gain exposure to different markets and currencies.

However, it’s important to understand the potential benefits and risks before adding international funds to your portfolio. These include diversification, exposure to developed markets, exposure to different currencies, risk of currency fluctuations, political and economic risks, higher fees, and limited options.

It’s important to do your research, understand the fund’s risk profile, and consult with a financial advisor before making any investment decisions.