The past one year has been quite turbulent for the Indian stock market and mutual fund investors. Reasons like new trade policies after Trump’s return in the US, geopolitical tensions globally and FIIs withdrawing capital from the Indian market weakened investors’ sentiment. As a result, most equity fund categories, such as large cap, small cap, flexi cap and ELSS failed to give even double-digit returns in the last one year. These key mutual fund categories have seen less than 5% average returns during this period. On the other hand, international funds as a category clocked a 16.75% return in the past one year.
In the global fund category (67 funds), the top-performing mutual fund has delivered nearly 74% returns in the last one year. But before we march ahead, let’s understand the reasons behind this stupendous performance by international mutual funds in the last one year.
What are the reasons behind the great performance of international funds?
Advantage of international opportunities: Positive sentiments towards developed markets like the US, especially in sectors related to technology, healthcare and green energy.
Weakness of rupee against dollar: Investing in foreign markets not only provides diversification, but when the rupee weakens, the returns increase even more.
Decline in domestic market: When equity markets in India slip, investors turn to foreign funds to maintain balance in the portfolio.
Now, we will take a look at the top 5 mutual funds in the international fund category based on the past 1-year returns. These funds have given returns ranging from 39.71% to 73.62% in the last 1 year.
1. DSP World Gold FoF – Direct Plan
1-year return: 73.62%
2. Mirae Asset Hang Seng TECH ETF FoF – Direct Plan
1-year return: 52.53%
3. Mirae Asset Hang Seng TECH ETF
1-year return: 44.24%
4. Mirae Asset NYSE FANG+ ETF FoF – Direct Plan
1-year return: 40.09%
5. Nippon India ETF Hang Seng BeES
1-year return: 39.71%
(Data: Value Research)
So, the top performing mutual fund – DSP World Gold FoF -Direct plan – has delivered nearly 74% returns in the last one year. A lumpsum investment of Rs 1 lakh in this fund would be worth now Rs 1.73 lakh in just 12 months.
Investment in international funds: Benefits and precautions
Big advantage of diversification:
When we depend only on Indian companies or market, our entire investment remains linked to the same economy. But by investing in international mutual funds, you diversify your portfolio. Due to this, if the Indian market falls due to any reason, then the good performance of foreign markets can balance your total investment. It is just like you keep all the eggs in different baskets instead of keeping them in one basket.
Take advantage of global growth:
Each country’s economic situation and growth trend is different. For example, recently, sectors such as technology, healthcare and green energy have seen a tremendous boom in the US, Europe and Japan. If Indian investors invest in such globally growing sectors, they can get better returns on their investment – even when the same growth is not seen in India.
Additional benefit from rupee weakness:
When you invest in international funds and the fund gives returns in dollars, euros or other strong currencies, if the Indian rupee weakens, you get additional returns. For example, if the rupee falls against the dollar, the value of your investment increases in rupees, which benefits you.
Thematic investment opportunity:
International funds often focus on certain sectors, such as artificial intelligence, electric vehicles, healthcare technology, climate change solutions, etc. These are all areas which are considered to have a bright future and which are not yet fully developed in India. By investing in these thematic funds, you can become a part of future growth.
Also read: Top SBI mutual fund: THIS scheme turned Rs 1,000 SIP into Rs 57 lakh, Rs 1 lakh grew over 42 times
Risks are also not less, so understanding is important
Geopolitical risk:
International markets are directly affected by global events. Like US-China trade tussle, Russia-Ukraine war and Middle East geopolitical crisis – all these events can affect the investment. Therefore, while investing in these funds, you will also have to keep an eye on global events.
Effect of currency risk:
Just as the weakness of the rupee can be beneficial, similarly if the rupee strengthens or the foreign currency weakens, then your returns can also decline. Currency fluctuations directly affect your investment, so it would not be right to ignore it.
Regulatory risk:
Every country has its own laws, tax rules and regulations. If a country closes its market or imposes new taxes for foreign investors, then the performance of the funds may be affected. Therefore, it is also important to understand the regulatory environment.
Also read: Gold mutual funds Vs Large-cap equity funds: 1, 3, 5 and 10-year returns compared
What to think before investing?
- Choose the right market:
Invest in countries and regions that are less volatile and where the impact of Trump’s protectionist policies is less. Europe, Japan and some Asian countries can be better options from this point of view.
- Choose the sector wisely:
Technology, green energy, healthcare – these are sectors that are not only trending, but also have the potential to grow rapidly in the coming times. Investing in funds based on such sectors can be more beneficial.
- Do not ignore currency:
If you think that the rupee may weaken in the coming times, then this may be a good time for you to invest in foreign funds. Because then the return received in the dollar or other strong currency becomes more in rupees.
Summing up:
Investing in international mutual funds is not just a means of earning returns in today’s era, but it is also a means of keeping your portfolio safe and connecting with global opportunities. Yes, there are some risks associated with it, but if you choose sectors, countries and sectors wisely, these funds can take your investments to new heights.