International mutual funds- How much of the portfolio should you allocate for them?

Are you considering an investment in an international mutual fund? If the answer is yes, then you are not alone! Many investors in India are steadily branching out towards including overseas mutual funds in their portfolio. Purchasing foreign equity, ETFs and global mutual funds may be a good way to ensure portfolio diversification although you should carefully work out your allocation strategy and also decide on what to purchase in the meantime. India is currently one of the world’s fastest growing economies although it is only representative of 3% of the equity market worldwide. This indicates that there are still ample opportunities for investors in India to capture several investment themes and sectors that lie beyond the equity market in the country. The reasons for investing in global markets may be exposure to a single/multiple nations or exposure to an emerging theme/sector.

Globally diversified portfolios offer added wealth creation outlets in the portfolio while also diversifying risks in turn. Various markets have performed better at various times and it is wise to keep rotating throughout numerous markets and geographies since laggards and high performers may keep fluctuating even on a yearly basis. If benchmark indices are taken into comparison, markets in the U.S. have created higher wealth for investors as compared to Indian markets over the last 3, 5 and 10 year periods in local currencies. Investors should make a note of the fact that depreciation of the rupee in the long haul vis a vis the strong currency like USD, will only augment returns and vice versa.

Investors should not stay limited within the confines of their domestic markets only as per experts. Depending upon any person’s individual risk appetite, financial goals and other objectives, investing in international mutual funds may be a good bet. Some overseas mutual funds in the portfolio will also help investors get exposure to a desired sector like technology. ETFs or ETF based fund of funds which track performance of any index will be ideal for investments owing to comparatively reasonable costs and a more transparent portfolio. Additionally, owing to investments via passive products, investors may readily minimize or negate risks of underperformance by the fund manager. The ETF based fund of fund offers more scope to investors for investing in the ETF via a regular mutual fund route in a staggered way via SIP/STP or through a lump sum.

Investors should also be aware of factors like the investment goals and the overall risk profile. A fund should be selected which fully syncs with the investor’s profile and also objectives. Take costs into account as well. In an ideal scenario, investors may begin with a lower allocation initially like 5% and gradually scale it up over a sizable duration as well. With numerous options available in active mutual fund categories and also for low-cost passive ETF options, it is easier to get global exposure for your portfolio nowadays.