Understanding Global Funds

Understanding Global Funds

By Akhil Chugh

Date October 10, 2021

Should Indian investors invest overseas?

Yes. India constitutes just 3 percent of the global GDP share, which means that Indian investors have around 97% of the untapped market where they can look for investment opportunities. A large part of economic activity happens outside our borders and therefore, an Indian investor must allocate a part of their portfolio to Global Funds to participate in growth stories worldwide.

Elon Musk, CEO of Tesla said in 2012, “I wish to die on Mars, just not on landing.” The technology leaps his companies have taken over the last few years with this vision in mind have today propelled them into becoming some of those most sought after by investors. Similarly, Facebook CEO Mark Zuckerberg once said, “There is a huge need and a huge opportunity to get everyone in the world connected… and we believe this is the most important problem we can focus on”. Today, Facebook is one of the most valuable companies listed on the stock market.

What does this mean as an investor? There are numerous opportunities out there that are attracting the brightest minds on the planet, and these are being converted into highly profitable businesses, driven by the rapid pace of technology and the minds developing it. Investing in companies that are creating new ways to tackle some of the biggest challenges and making money in the process seems like a fantastic opportunity to create wealth. After all, investors in companies like Tesla, Facebook, Salesforce, Microsoft, NVidia, and many others have made amazing returns on their investments. An investment in such companies can add significant value to your investment portfolio growth over time.

It’s physically impossible to keep track of all the companies across markets around the world. Also, there is a limit on how much you can invest in these opportunities directly. As a retail investor, the opportunity therefore lies in the space of Global Funds. 

Let’s understand it in detail below.

What are Global Funds?

Global Mutual Funds are mutual funds that identify opportunities and invest in equity stocks across international markets.

  • Invest in high-growth companies like Facebook, Google, Apple etc across the globe.
  • These could be broad-based or sector-specific, based on the experience and knowledge of the fund management. 
  • Helps in mitigating country-specific risk & volatility.
What are global funds?

Benefits of Investing in Global Funds:

Global Funds helps you make hay not “when” the sun shines, but “wherever” the sun shines!

Let us take a closer look at the advantages of having a global fund in your portfolio:

1. Global access:

With globalisation, we are all consumers of global products in our day-to-day life. Whether it is our smartphone, the social networking apps we use or the e-commerce platforms we shop on, global brands have created a vast and sticky customer base in each segment in India. As consumers, we recognize the quality and scale these brands bring in. A natural extension among investors is to explore the opportunity of investing in these companies. When you invest in a global company, you benefit from its global presence and spread. The growth prospects of such companies are not restricted to a country, and by investing in them, you can partake in the gains that these companies make. 

Invest in Global Funds

2. Risk diversification:

Different asset classes such as equity, gold, debt have little to no correlation in their performance. And that is why you build a diversified investment portfolio. In a similar manner, markets in different countries do not have a synchronized performance. There is very little correlation as each country has a different economic cycle. So even if your home market, India, is witnessing a bear run, a bull run in another market can help in generating returns. A global fund thus helps in mitigating country-specific risk and volatility as it is not restricted to a specific region.

Basically, spreading your investments across geographies is diversification on a global scale, and it’s beneficial to your portfolio just the way diversifying across sectors and market caps when investing in India.

3. Efficient risk-reward:

While diversification reduces risk, it also helps in earning good returns.  This is because a developed market like the US is home to some of the most disruptive and fastest-growing companies. Investing in a global fund gives you the opportunity to invest in such high-growth companies and earn returns.

Similarly, tapping into emerging markets like Indonesia, Malaysia and Thailand gives you an opportunity to earn good returns in the long term. These economies are growing consistently and the same is reflected in their equity markets.

4. Hedge against inflation:

Investing in Global Mutual Funds is a good way to hedge against inflation. Investing in economies with lower inflation than India will allow you to reap returns in the medium to long term.

5.  Benefit from the disparity in the currency exchange rate:

In addition to returns from stock appreciation, a global fund benefits from the likely disparity in the currency exchange rate. So, if you invest in a country whose currency is stronger than India, say, the US, then you can enjoy more rupee gain for every dollar invested.

Best Global Funds to Invest:

Based on our analysis and research at Net Brokers, below mentioned schemes are currently the best schemes in the Global Funds category. These funds fare well on quantitative and qualitative parameters and have the potential to deliver superior growth in the long run.

top 5 Global Funds to invest
Past performance of top global funds

How are Global Funds Taxed?

All mutual funds which invest primarily in foreign markets are considered to be non-equity funds for tax purposes. Hence, Global Funds are taxed as follows:

  • If you sell the units within three years from the date of purchase, then the gains are added to your taxable income and taxed as per the applicable tax slab.
  • If you sell the units after the completion of three years from the date of purchase, then the gains are taxed at 20% with indexation benefits.

Key Takeaways from Net Brokers:

  • Global Fund could be a valuable addition to your portfolio to participate in growth stories worldwide and mitigate country-specific risks and volatility.
  • Global Funds should ideally constitute 10% of your portfolio if you’re looking for true diversification across geographies to invest in high-growth companies and economies.
  • Mutual funds are the best way to invest in international markets as you do not have to worry about following market dynamics and global events closely because fund managers will take care of that aspect with their technical expertise and their experience of investing in foreign markets.
  • An investment horizon of over 5 years or more is ideal in Global Funds as it will flatten the risk of short-term geopolitical events. 
  • Investors should carefully scrutinize various Global Fund schemes before making investments to choose the fund matching their investment objectives. Seek professional help from financial experts in case of any doubt.

For more information, get in touch with us today.

Download our mutual fund app & start investing across borders to truly diversify your portfolio and benefit from global growth stories.

Happy investing!