Are global mutual funds the same as international funds? The answer is a resounding no! Investors must grasp this essential difference. An international fund is focused solely on investing in foreign markets, with no allocation to the investor’s home market. In contrast, a global fund takes a broader approach by investing across all available markets, including the investor’s own country.
Think of it this way; if a trading company invests in markets throughout Asia and the Middle East while still setting aside a portion for the Indian market, it functions like a global mutual fund. However, if that same trading company were to invest globally but exclude India, it would be termed an international fund.
Distinction points between global and international mutual funds –
Indian investor perspective
For Indian investors, global mutual funds offer a unique advantage. They enable participation in the global growth story while benefiting from the growth potential of the Indian economy. International mutual funds might offer diversification but could miss out on the robust growth prospects of the Indian market.
Market reach and diversification
Global mutual funds take a wider perspective, offering diversification across both domestic and foreign markets. This broader approach can help mitigate risks associated with market fluctuations. On the other hand, international mutual funds focus solely on foreign markets, potentially exposing investors to concentrated risks in those regions.
Risk and return profile
The combination of exposure to domestic and international markets in global mutual funds can lead to a balanced risk and return profile. International mutual funds, due to their focus on foreign markets, might carry higher risk levels. Potential returns can also be influenced by factors specific to those foreign markets.
Global mutual funds may include exposure to various currencies, which can affect returns based on currency exchange rate fluctuations. In contrast, international mutual funds usually have a more concentrated currency exposure related to the specific foreign markets they invest in.
Exposure to the home market
Global mutual funds have the advantage of providing exposure to your own country’s market, along with international diversification. This can be beneficial as it allows you to participate in the growth of your home economy. International mutual funds, however, exclude investments in your home market.
Both global mutual funds and international mutual funds offer distinct advantages. Global funds provide the best of both verticals i.e., allows Indian retail investors to leverage the potential of international markets while not missing out on opportunities at home country. In contrast, international mutual funds act as a diversified financial product, minimising the risk linked with a single market instrument. Careful consideration of your life goals, risk appetite level and investment horizon can guide your decision to allocate your investible between these two fund types. Remember, a balanced portfolio is often a key to successful investing, and a mix of global mutual funds and international mutual funds could be the strategy for a well-rounded market investment to generate considerable growth over the long run.