OVER the past few years, investors are increasingly using international mutual fund (MF) schemes to add global tech giants, multinational brands, and international indices like the S&P 500 and Nasdaq to their portfolios. Experts feel that the Indian mutual fund industry has opened the door for small retail investors through the systematic investment plan (SIP) route to directly invest in the best performing global companies and get better returns. Many investors already have gained spectacular returns by diversifying their portfolios with international mutual funds. A leading city-based expert, CA Ranjit Dani suggests that diversifying with international mutual fund (MF) schemes can help reduce risks and give access to top global companies outside India. Although, Indian MFs should remain the main focus area, adding a small global share balances a persons investment plan. Adding global funds lowers risk because a persons money is not tied to just one country.

 

It gets spread out to access to large tech and health companies not listed in India. This also provides protection against currency changes when the rupee drops. For the last couple of years, Indian equities have had a relatively difficult run compared with several major global markets. At the same time, markets such as the US, Taiwan, Korea and China have delivered strong returns in periods when Indian equities have been less rewarding, he added. “Adding international equities introduces markets with different economic cycles. When one market struggles, another may continue to perform well. This can reduce overall portfolio volatility and improve the portfolio’s resilience,” he pointed out. International investing also provides access to businesses, sectors and investment themes that have limited or no representation in India like semiconductors and advanced technology in Taiwan, global technology platforms in the US, robotics and advanced manufacturing in Korea, and several areas of artificial intelligence, biotechnology, aerospace and luxury consumption across developed markets.

 

Meanwhile, international MF schemes have become so popular in the country that the overall limit of USD 7 billion for the Indian MF industry set by RBI and SEBI on overseas investments has mostly run out. Currently, several international MF schemes have stopped accepting existing SIP installments, he pointed out. According to Nirav Panchmatia, an AMFI-registered Mutual Fund Distributor and Founder-CEO of AUM Financials mentioned that Indian investors have increasingly been turning to international equity markets through the mutual fund route in recent times. While this is typically a sound strategy that adds diversification to an Indian investor’s portfolio in normal circumstances, but such investments should be avoided altogether for the next few years. Panchmatia anticipates significant volatility and a possible major correction in the markets in the coming months, driven by AI bubble in the US markets. He cautioned investors to stay away from both international and domestic equity markets for the time being. According to him, gold serves as a good hedge against a potential stock market correction. Another leading expert in MF industry, CA Kirit N Kalyani, Former Chairman, Nagpur Branch of ICAI views that the Indian MFs should remain the core of most portfolios, however, selective exposure to international MFs offers valuable diversification and participation in global growth.

 

This trend also helps hedge against rupee depreciation and provides exposure to sectors like AI and semiconductors that are missing from local exchanges. “The objective should not be to chase the highest returns, but to build a portfolio capable of generating attractive risk-adjusted returns over the long term. Asset allocation should be aligned with the investor’s financial goals, investment horizon and risk appetite, he stated. He clarified that investing through an Indian mutual fund investing overseas and directly investing in an overseas fund under RBI’s Liberalised Remittance Scheme (LRS) are different routes, with different compliance and taxation considerations.