If you invest without thinking there is a probability that you will go wrong. Many a times it happens that if there is trending term, people blindly follow that. For example, if one person invested in abroad because he has gotten good returns, people blindly follow him without knowing the small points regarding investing internationally.
So we are going discuss what are different ways, through which we can invest in international funds. What are different parameters before considering investing in the international market? Why should you invest in International funds?
Channels to invest in International Funds
Let’s now on understand how and what could be the different channels which you can invest abroad? For example I have to go from Pune to Goa. If I want to go to one place to other there could be multiple routes. Similarly if you want to invest abroad they could be different ways which you can Rich a destination that is investing abroad. There are usually four types we’re going to discuss today. More ways but we are here to discuss four major ways, that how you can invest in International Funds.
- FOF -which is fund of fund.
- ETF -which is exchange traded funds
- Feeder fund
- Actively managed funds
Funds of funds FOF
So now let’s understand how fund of fund works? When an investor invest in Indian mutual fund first. This Indian Mutual Fund invest in abroad mutual funds. Let US SAY it can invest in a single Mutual Fund or it could be invest in multiple mutual funds or it could invest in ETF. What this mutual fund does is that, it could invest in US stocks. Finally that investor exposure of US stocks. But not directly it is indirectly.
ETF exchange-traded fund
Assume that there is an investor who invest in an Indian index ETF. This Indian index ETF invest in AN abroad index. Now that investor opportunity to invest in International index ETF indirectly through the Indian index ETF.
Assume that we have US master fund. We can imagine that it is a big pond. And we have multiple collection centres. One collection centre is in India, one is in UK, Australia, other one is in US itself. These are collection centres but basically these are mutual funds. HERE the collection centres are the feeder funds.
So what do they do? Are they invest directly?
Their job basically is to collect money from multiple investor. This feeder fund this money us master fund. Same thing will happen in UK, Australia feeder funds. They collect money from investors, and give it to the US master fund.
So what master funds do? Where it will invest so much money?
It will invest in either stocks, or in Mutual Fund, or in ETFS.
Actively managed funds
Let’s assume there is an investor, who invest in an Indian Mutual Fund. In this mutual fund invest in International stocks. This mutual fund is going to decide whether he will invest in Amazon or Tesla or any other stocks. Show the investor an opportunity to us stocks directly through a actively managed mutual fund, which is invest in US stocks.
Now you understood all types of ways through which you can invest in international stocks. Now let us understand the examples of this types.
- FOF- DSP US Flexible Equity Fund
- ETF- Motilal Oswal Nasdaq 100 ETF
- Feeder fund- invesco India feeder invesco
- Actively managed fund – Nippon India US equity opportunity
Why should you invest in International Funds?
So why should you invest in International Funds?
Diversification- if you want to diversify your portfolio, I think investing in International Funds can we definitely a good idea. It is always said that never put all your eggs in one basket. So instead of invest your entire money in specific country, why not invest in abroad if you have chance for it.
Currency depreciation- you could invest in international stocks for the purpose of gaining. Currency depreciation as well. For example, we are in 1990. At this time the exchange rate of 1 US Dollar 17 rupees. I am allowed to invest in International stocks in 1990. When we are in 2020, today the exchange rate is 1 US dollar is 73 rupees. So wherever we have invested that gives me a CAGR of 10%. But had my returns only 10%? No! 10% only for invest appreciation. The difference between 17 rupees to 73 rupees is also my gain. So if you invest abroad generally it happens at the overall time frame our currency depreciates. That is why investing internationally can be a gaining factor.
Taxation of International Funds
If I talk about investing in International equities, Still it is treated as debt Mutual Fund. So short term gain International fund will be treated as debt fund and that is going to be taxed for short term. And it will be taxed as per individual’s tax bracket. And if it is a long term it will be taxed at the rate of 20% with indexation. By the way short term and long term depend on your period of holding which will be 36 months. Anything which you are holding for less than 36 months will be considered as a short term holding. If it is for more than 36 months it will be considered as a long term holding.
If you are already investing International Funds, do you know which type of fund is that?