Global Mutual Fund
Introduction
In the 21st century, investors are well-informed and aware of market performances worldwide. For such investors, geographical boundaries no longer hinder exploring investment opportunities and earning good returns. These investors now turn to Global Funds, which allow them to further diversify their portfolios and invest globally. Here, we will discuss these funds, their features, and the benefits they offer.
Features of Global Mutual Funds
Diversification
Global funds help investors diversify their portfolios by investing in a wide range of securities across multiple countries, thereby reducing concentration risk.
Risks and Returns
Investing in different countries involves varying risks based on market conditions and macroeconomic factors in each country. Investors should consider currency risk, as changes in international currency values can impact the overall performance of global funds. Returns from these funds can vary due to multiple influencing factors.
Inflation Hedge
Investing in Global Mutual Funds can be an effective way to hedge against inflation.
Taxation
Global Mutual Funds are considered non-equity funds for tax purposes. They are taxed as follows:
Short-Term Gains: If units are sold within three years of purchase, gains are added to your taxable income and taxed according to the applicable tax slab.
Long-Term Gains: If units are sold after three years, gains are taxed at 20% with indexation benefits.
Structure of Global Funds
Based on Investment Method
Direct Investment: The local fund manager directly invests and manages the portfolio.
Indirect Investment: Includes:
Feeder Funds: Collect funds from investors and transfer them to an offshore fund house.
Fund of Funds: Invest in a collection of foreign funds.
Mix of Foreign and Domestic Equity: Invest in both international and domestic markets, suitable for investors with moderate risk tolerance, and increase portfolio tax efficiency.
Based on Investment Location
Regional Funds: Invest in specific regions or countries, suitable for investors with a good understanding of the targeted economy.
Truly Global Funds: Invest in countries worldwide without regional or country preferences, leading to a more diversified portfolio.
Based on Specific Themes
Some global mutual funds invest based on certain themes, such as the energy sector worldwide, allowing investors to target growth in specific sectors.
Pros and Cons of Investing in Global Funds
Pros
Opportunity to invest in some of the fastest-growing markets globally.
Insulation from the volatility of your home country's markets.
Potential for handsome returns.
Cons
Exposure to market risks in countries where you may not fully understand the market nuances.
Currency exchange rate fluctuations can negatively impact your portfolio.
FAQs About Global Mutual Funds
What are Global Mutual Funds?
Global Mutual Funds invest in companies worldwide, allowing investors to participate in international markets, including their home country.
How do Global Funds differ from International Funds?
Global Funds invest in all countries, including the investor's home country, while International Funds invest in all countries except the investor's home country.
What are the risks associated with Global Mutual Funds?
Risks include market conditions and macroeconomic factors of different countries, currency risk due to exchange rate fluctuations, and varying degrees of political and economic stability.
What are the tax implications for Global Mutual Funds?
For tax purposes, these funds are considered non-equity funds. Short-term gains (sold within three years) are added to taxable income and taxed according to the applicable tax slab. Long-term gains (sold after three years) are taxed at 20% with indexation benefits.
What should investors consider before investing in Global Mutual Funds?
Investors should consider diversification benefits, potential risks, market conditions, macroeconomic factors, currency risks, and the overall tax implications of investing in Global Mutual Funds.