International Fund

What are International Funds?

Also known as foreign funds, international funds are mutual fund schemes that primarily invest in equity and debt securities in the foreign markets. These funds are often referred to as overseas funds. The fundamental advantage that international funds offer is that of good portfolio diversification across different economies, and capitalize from the growth potential of foreign companies.

Features of International Funds

• Diversification

This is one of the key features of international funds, where the investors get access to a range of financial instruments issued in the markets across the world. Their portfolio is no longer restricted to investment options in the domestic market, but can also consist of equity/debt securities from different countries.

• Exposure to Different Economic Cycles

As international funds predominantly invest in financial instruments in various countries, they have the opportunity to capitalize from investment during different economic cycles. This helps in effectively mitigating market risk, and ensures minimal loss during critical market movements.

• Risk Exposure

These funds are highly risky as it is quite difficult to comprehend the market movement of foreign economy, and how a particular country will react to global, political and economic changes.

• Professional Management of Money

For an amateur investor, it is difficult to judge the market sentiment of a foreign country, due to lack of technical knowledge and credible  sources. International funds allow these investors to invest in foreign markets under the guidance of financial experts.

Tax Implications on International Funds

• If the fund units are sold within 3 years of investment, Short Term Capital Gains Tax is levied. The capital gains are added to the taxable income of the investor and taxed as per the income tax slab of the investor. If an investor has made a capital gain of ₹50,000 on investment in one of these funds and withdraws the amount before 3 years of investment, STCG would be levied, as per the income tax slab of the investor. ₹50,000 would be added to the taxable income of the investor and taxed accordingly.
• If the fund units are sold after 3 years of investment, Long Term Capital Gains Tax of 20% is levied, with the benefit of indexation. Indexation reduces the value of overall Long Term Capital gains to reflect the effect of inflation on your investment.
  To calculate the final value of capital gains post indexation, we use government’s Cost Inflation Index (CII) in the following formula:
  Indexed cost of Acquisition = Investment Amount * (CII of the year of withdrawal/ CII of the year of investment)
  Suppose the investment amount is ₹70,000 in the year 2016 and the withdrawal  amount is ₹1 Lakh. The value of capital gains is ₹30,000 before indexation
  Indexed Cost of Acquisition= 70,000* (280/254) = 7,71,65.35

Note: CII in the year 2015 = 254
CII in the year 2018 = 280
Final Value of Capital Gains= 1,00,000- 7,71,65.35 = 2,2834.65
Tax Payable = 20% of 2,2834.65 = 4,566.93

Who Should Invest in International Funds?

• Investors looking to diversify their investment portfolio and invest in securities across the global market can consider investing in International Funds. Total allocation to international funds should not exceed 15% of your overall investment portfolio.
• International funds are recommended to those investors who have some knowledge about the functioning of  international markets and a little bit of time to study the market.
• Since the investment portfolio of these funds consists of equity securities of the global markets, the risk exposure is quite high.
• Before investing in any region-specific fund, it is advisable to do thorough research about the region, its current economic condition and future prospects.

How to Invest?

There are two ways through which a person can invest in International Funds:

• Online

You can invest in International Funds online seamlessly through online platforms (such as Paisabazaar.com) or directly through the websites of the Asset Management Companies (AMCs), offering the fund.

• Offline

This conventional mode of investment requires an investor to fill a form and submit it at the nearby branch of the fund house, or invest through a broker.

To know more about the investment procedure for mutual funds, visit: How to invest in Mutual Funds?

Best International Funds to Invest in 2020

Fund Name	1- Year Returns	3- Year Returns	5-Year Returns
Franklin India Feeder – Franklin US Opportunities	29.87%	20.04%	15.19%
ICICI Prudential US Bluechip Equity	25.65%	17.20%	15.18%
DSP US Flexible Equity	21.81%	14.22%	12.63%
Edelweiss Greater China Equity Offshore	39.74%	19.86%	12.42%
Kotak Global Emerging  Market	18.20%	9.89%	5.77%

{Note: Funds have been ranked on the basis of 5 year returns}

{Data as on January 27, 2020; Source: Value Research}