A Global Mutual Fund, by definition is an equity mutual fund that invests overseas in companies listed in both, the developed and emerging markets. They provide an opportunity to Indian investors to access quality global businesses, industries and themes that may not be or are limitedly inadequately available in the Indian market, thus enabling them to geographically diversify their portfolios.
Such funds are launched with the objective of tapping growth opportunities in countries like USA, Europe, Japan as well as China and Southeast Asia. Some are focused on a particular region, sector may have a diversified global investment approach and thus, based on the investment style while certain funds may adopt region specific or sector specific patterns.
Global mutual funds have the advantage of geographic diversification in investment portfolios. Foreign markets operate on different economic and monetary cycles, so investing in foreign stocks can lower the risk and volatility in a portfolio during local market downturns. Access to foreign markets can potentially improve the long-term return volatility of the portfolio. It also provides access to foreign companies with global operations which are known to be innovative, growing and highly profitable.
Through global funds, Indian investors can now invest in renowned multinational corporations and leaders in the technology, healthcare, finance, consumer, and industrial sectors. Such companies with healthy balance sheets and international demand, along with competitive barriers, enhance sustained long-term growth. With global exposure, investors can also participate in long-term trends like electric vehicles, artificial intelligence, biotechnology, renewable energy, and digital finance.
Global funds also afford Indian investors with an opportunity to quasi-invest in different currencies besides the Indian rupee. Furthermore, these funds provide access to investment themes and industries that are underrepresented in India's listed equities. For example, Indian companies have limited presence in the global cloud services or in the semiconductor industry.
Even as the Indian equity market continues to grow, incorporating global funds into one’s portfolio optimizes risk-adjusted returns besides cutting exposure to country specific risks such as political uncertainty, currency volatility and any slowdown in the domestic economy.
On the flipside, one must recognize that these funds carry foreign market and currency risks. Its performance can vary on account of global interest rates, inflation, and geopolitical tensions. However, these risks can be minimized through diversification and careful fund selection.
Global funds are usually equity oriented and if so, taxed in India at 12.5 percent post a holding period of two years. For those with substantial holdings in Indian equity mutual funds, adding global funds in the mix to diversify for all the reasons mentioned above, makes good sense. Typically, one could consider holding 10-15 percent of one’s portfolio in such funds.
Finally, like any other equity fund, such funds too are better suited to those with a minimum investment horizon of five to seven years and the ability to bear moderate to high risk.
(Ashok Kumar heads LKW India. The views expressed here are his own)