What are Global Mutual Funds?

As the world becomes more interconnected, investors are no longer confined to their domestic markets. Today, with the availability of global mutual funds, geographical boundaries are no longer a barrier to investment opportunities. Investors who seek to diversify their portfolios and hedge against domestic market risks are increasingly turning to these funds. But what exactly are global mutual funds, and how can they benefit you? Let’s explore this exciting investment avenue.

Global Fund Meaning

Global Mutual Funds are investment funds that allow investors to diversify across markets worldwide. These funds invest in companies across different countries, giving investors exposure to a variety of international markets. Notably, global funds invest in both domestic and international companies.

The investor pool for these funds is growing rapidly, particularly in India. Global mutual funds in India are gaining traction as more investors look beyond domestic markets to secure better returns.

Global Mutual Funds vs. International Mutual Funds

A common question among investors is whether global mutual funds and international mutual funds are the same. While the two may seem similar, there is a crucial difference.

• Global Mutual Funds invests in companies across all countries, including the investor’s home country.
• International Mutual Funds, on the other hand, invest in companies in all countries except the investor’s home country.

Know More About What are International Mutual Funds?

For Indian investors, global mutual funds would include Indian companies along with companies from around the world, whereas international mutual funds would exclude Indian companies from the portfolio.

Features of Global Mutual Funds

1. Diversification

One of the main attractions of global mutual funds is the ability to diversify investments beyond national borders. A well-diversified portfolio spreads the risk across multiple countries and sectors, reducing the impact of any single market downturn. For Indian investors, global funds offer an excellent way to add international exposure to their portfolios.

2. Hedge against domestic market risks

Investing in global mutual funds provides an excellent hedge against domestic market fluctuations. For example, while the Indian market might be underperforming, global markets could be performing well, helping to balance out potential losses in the portfolio.

3. Access to global leaders

Global mutual funds give investors the chance to invest in well-known multinational corporations like Apple, Google, and Tesla, which are not listed on Indian exchanges. Such opportunities are particularly appealing to investors who want to tap into the success of global market leaders.

Risks and Returns of Global Mutual Funds

Global mutual funds come with their share of risks and rewards, much like any other investment. The returns on these funds depend on several factors, including the performance of foreign markets, currency exchange rates, and global economic conditions.

1. Market risk

Investing in different countries exposes your portfolio to the market risks of each country. These risks could be driven by political instability, economic downturns, or changes in market regulations. As a result, investors should carefully evaluate the macroeconomic conditions of the countries they are investing in.

2. Currency risk

A major factor that impacts global mutual funds is currency risk. When you invest in international markets, you are subject to fluctuations in currency exchange rates. For instance, a depreciation in the Indian Rupee against foreign currencies could boost returns, while an appreciation could reduce returns.

3. Inflation hedge

Global mutual funds are often seen as a way to hedge against inflation. By investing in economies that may have lower inflation rates, investors can protect their portfolios from the eroding effects of inflation in their home country.

Taxation on Global Mutual Funds in India

Global mutual funds in India are classified as non-equity funds for tax purposes. This means that the taxation rules differ from those applicable to domestic equity mutual funds. Here’s how they are taxed:

• Short-Term Capital Gains (STCG): If you sell your units within three years of investment, the gains are added to your taxable income and taxed according to the applicable tax slab.

Know More About Short-Term Capital Gains (STCG)

• Long-Term Capital Gains (LTCG): If the investment is held for more than three years, the gains are taxed at 12.5%.

Know More About Long-Term Capital Gains (LTCG)

Structure of Global Mutual Funds

Global mutual funds can be structured in different ways based on where and how they invest their corpus.

1. Direct investments

In this structure, the fund manager directly invests in foreign companies, managing the portfolio based on global market opportunities.

2. Feeder funds

Here, the local fund house collects funds from investors and transfers them to an offshore fund. The offshore fund manager then makes investment decisions.

3. Fund of Funds

This is a type of global mutual fund where the fund invests in a collection of foreign funds, providing investors with broad exposure to international markets.

Who Should Invest in Global Mutual Funds?

1. Experienced investors

Global mutual funds are ideal for investors who already have a well-diversified domestic portfolio and are looking to further expand their investments. These investors typically have a higher risk appetite and a long-term investment horizon.

2. Investors interested in global market leaders

If you’re someone who wants to invest in leading global brands like Apple, Facebook, or Netflix, then global mutual funds can provide you with the opportunity to own a part of these global market leaders.

3. Long-term investors

Global mutual funds are also suitable for investors with long-term financial goals, such as retirement planning or funding children’s education. The longer investment horizon helps smooth out the volatility in foreign markets and allows you to benefit from compounding.

How to Invest in Global Mutual Funds

Investing in global mutual funds in India has become relatively easy thanks to online platforms. Here’s a step-by-step guide:

1. Choose a Platform: You can invest in global mutual funds through various platforms, such as mutual fund apps or online brokerage services like Angel One.
2. Select the Fund: Based on your risk appetite, investment horizon, and financial goals, choose a global mutual fund that best aligns with your needs.
3. Complete KYC: Ensure your KYC (Know Your Customer) details are up to date, as this is required for any mutual fund investment.
4. Invest: Once you have selected the fund, you can invest either through a lump sum or a systematic investment plan (SIP).

Top 5 Global Mutual Funds in India

For Indian investors looking to invest in global mutual funds, here are some of the top-performing options based on 3-year returns:

1. Invesco India – Invesco Global Equity Income FoF Direct-Growth
2. Bandhan US Equity FoF Direct-Growth
3. Motilal Oswal Nasdaq 100 FOF Direct – Growth
4. Invesco India – Invesco Pan European Equity FoF Direct-Growth
5. Nippon India Japan Equity Fund Direct-Growth

Conclusion

Global mutual funds offer a gateway to international markets, allowing investors to diversify their portfolios, hedge against domestic market risks, and tap into the success of global market leaders. However, it’s essential to understand the risks involved, especially in terms of market volatility and currency fluctuations. With the right strategy and a long-term outlook, global mutual funds can be a valuable addition to your investment portfolio.

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