International funds have been an investor's delight for an year or more, but building a global mutual fund portfolio for long-term wealth creation may still require a cautious approach with a few caveats.
1. Opt for pure international funds offered by Indian AMCs, where asset allocation calculation is easier, instead of their mixed offerings which mostly invest in Indian stocks to get better tax treatment, because you will then have to invest much more to get the same global exposure.
2. Avoid thematic or sectoral global funds that focus on commodities, energy and agriculture exclusively.
3. Invest 10% max. each in developed markets (chiefly USA) and emerging global markets, within your risk appetite.
4. As these funds are subject to triple volatility risk - equity market, currency swings and geopolitical - invest only through SIPs for rupee cost averaging.
5. Avoid selling them when Indian markets are performing better in certain periods.
6. Keeping track of a foreign company's outlook is more difficult due to lack of precise information.
7. Over the longer period, a mature market like the US may not be able to beat the returns from emerging markets like India, where economic growth is likely to remain faster.
8. While international funds are equity in nature, their tax treatment is non-equity.
9. When investing through feeder funds, you are totally dependent on the parent fund to choose the right combination of schemes for you, which may not necessarily suit your own risk profile.
10. Significant long-term underperformance, of 5-10% CAGR, in international funds vis-a-vis domestic funds, cannot be ignored while creating and accumulating wealth from one's hard-earned limited resources, even for diversification sake.
1. Opt for pure international funds offered by Indian AMCs, where asset allocation calculation is easier, instead of their mixed offerings which mostly invest in Indian stocks to get better tax treatment, because you will then have to invest much more to get the same global exposure.
2. Avoid thematic or sectoral global funds that focus on commodities, energy and agriculture exclusively.
3. Invest 10% max. each in developed markets (chiefly USA) and emerging global markets, within your risk appetite.
4. As these funds are subject to triple volatility risk - equity market, currency swings and geopolitical - invest only through SIPs for rupee cost averaging.
5. Avoid selling them when Indian markets are performing better in certain periods.
6. Keeping track of a foreign company's outlook is more difficult due to lack of precise information.
7. Over the longer period, a mature market like the US may not be able to beat the returns from emerging markets like India, where economic growth is likely to remain faster.
8. While international funds are equity in nature, their tax treatment is non-equity.
9. When investing through feeder funds, you are totally dependent on the parent fund to choose the right combination of schemes for you, which may not necessarily suit your own risk profile.
10. Significant long-term underperformance, of 5-10% CAGR, in international funds vis-a-vis domestic funds, cannot be ignored while creating and accumulating wealth from one's hard-earned limited resources, even for diversification sake.