Investing in International Equities: Over the past few years, many investors have been attracted to invest in international equity funds due to high returns. Due to this, a lot of new funds offers are coming to invest in international markets. With this, investors are getting an opportunity to earn by investing in the foreign market. However, before investing in a foreign market, it is very important to keep many things in mind, such as what investors have to do in the Indian market. It is the most important cost and through which you are investing in the foreign market, it also has to be taken care of. Apart from equity risk, there is also the risk of currency risk on investment abroad and different growth and inflation of other countries. Investors should consider all these factors and decide the investment according to their risk-taking ability.
Keep these things in mind
- Cost Structure: In India, capital market regulator SEBI has banned imposing any charge on entry load for investment in mutual funds and the exit cost is also very low. Apart from this, the maximum limit for the expense ratio has also been fixed. If you compare it with American mutual funds, the upfront loads for retail investors can be up to 5 per cent. This load can also be up to 8.5 percent. Apart from this, there may be an exit load of 5 percent or more in American mutual funds. It does not include transaction fees that investors have to pay at the time of buying or selling mutual funds. In such a situation, investors have to keep in mind that a large part of their profit can go into charges.
- Fund of Funds Route: Whatever international mutual funds are available for investment in India, they are structured as Funds of Funds. This means that the domestic mutual fund scheme will invest in units of international mutual funds. Institutional plans have a lower fee load as compared to retail plans but the investor should know about the cost structure of the fund as the domestic fund house will charge its own expense ratio to the investors. In such a situation, if you have to pay more charges through the fund of funds route, then it will be beneficial to invest through the passive route.
- Diversify your investment: Most Indian investors invest in US markets for international equity funds. For the past ten years, US equities have given strong returns to investors, especially tech stocks. However, it should be kept in mind that diversifying your investment is a better decision. In such a situation, instead of investing only in US stocks, you should invest in stocks of many countries and instead of just tech stocks, you should also invest in stocks of other segments.
- Decide on the basis of assets under management: Every mutual fund company sees its profitability and does not continue the assets under management scheme below one level. Investors should not be surprised that their mutual fund company merged one scheme into another scheme or changed its objectives. However, it does not meet the initial investment targets. In such a situation, investors should also look at asset under management with fund rating, scheme performance and management track record and avoid investing in it if it is low.
(Article: Rishad Manekia, Founder and MD, Kairos Capital)