Why should you invest in international funds? Are there any risks involved?
Strong portfolios are built on diversification – the more inclusive your funds are, the better. Many investors can invest in US stocks through quite a few platforms in today’s market situation. Even financial advisors suggest that investors should have a certain percentage of their money invested in international funds for their safety against the unpredictability of the Indian market.
Given below are the reasons why you should invest in international mutual funds –
Risk and currency diversification
Investing in foreign funds can help diversify your portfolio as you get the opportunity to invest across different markets, risk ranges, varied sectors, etc. This diversification, in turn, helps mitigate your risks. Global markets have performed varyingly at different periods, with the best-performing market-changing now and then. By investing in such overseas funds, you can tap into the potential of such a best-performing market and reap benefits. Additionally, investing abroad exposes you to currency appreciation (or depreciation). According to experts, any soft currency that fluctuates frequently generally depreciates over the long term against a strong currency. This could impact the returns gained on such international funds.
Exposure to new-age stocks
The US stock market offers financial investors a chance to invest in new-age ventures such as e-commerce, social media, electric vehicles, network safety, and cloud computing. Many well-known companies have been outperforming in recent years. By putting resources into international finance, you can get direct access to stocks of famous companies.
Investing in US stocks gives you geological variety. It might so happen that the Indian economy may not perform because of some domestic components; however, other economies could still be thriving. In such a circumstance, directing resources in worldwide stocks balances your losses.
Despite the above advantages, there are some risks involved as well:
- Initially, it would help to exchange your Indian currency for an international currency on a foreign market at the current rate. It is this vulnerability that drives away numerous financial investors.
- Another risk in trading in uncharted business sectors is liquidity hazard, particularly in developing international business sectors. This happens because of not having the option to sell an investment rapidly without incurring considerable losses due to a political or economic emergency.
- There is also a risk of currency volatility – which could work in your favor or against your goals. While currency exchange fluctuations might not be explicitly seen, they impact your returns.
- An obstruction to investing capital into global business sectors is the additional transaction cost. Even a globalized and connected world involves transaction costs for international investments. International business commissions are often higher in other global markets than in the US. However, they fluctuate greatly based on the territory you are dealing with.
How to go about investing in international funds?
If you invest in international funds, you must give yourself a considerable time horizon to fully realize its potential. The said period could flatten the short-term risk curve caused by political or economic challenges. Suppose you are considering international funds to diversify your portfolio and are looking for guidance. In that case, it is prudent to reach out to a financial advisor who can curate bespoke investment plans based on your risk appetite and financial goals. Reach out to one today to invest in international funds and build a robust portfolio.