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Invest in Top International Mutual Funds In 2022: High Return Mutual Funds In India

Looking to understand how International Mutual funds work? Here is the ultimate guide to investing in them, associated benefits and details about some funds.
91_Best Global MF in India

The US markets (S&P 500 and Nasdaq) have done well in the last few years. As a result, many Indians are interested in investing in US markets. Looking at the Indian investor interest, many Indian fund houses have launched global mutual funds in India. This article discusses how to invest in top international mutual funds in 2022.

What are international mutual funds?

An international mutual fund is a fund that invests in debt securities or shares of corporations/companies that are located anywhere in the world outside the investor’s (Indians in this case) country of residence. For example, for investors staying in India, an international mutual fund is a fund that invests in shares of foreign companies (for example, US-based Apple or Facebook) listed on foreign stock exchanges (for example, NASDAQ) outside India.

International funds, also referred to as foreign funds or overseas funds, can give Indian investors exposure to global companies like FAANG stocks (Facebook, Amazon, Apple, Netflix, Google). You can diversify your portfolio beyond India with these funds.

Returns given by International mutual funds

Let us look at the returns given by some of the best global mutual funds.

Scheme name (Direct plan - Growth Option)AUM (Rs. crores)1-year (Absolute Returns)3-years (CAGR)5-years (CAGR)
Franklin India Feeder – Franklin US Opportunities Fund3,7480.50%21.23%19.87%
PGIM India Global Opportunities Fund1,499-15.07%22.83%19.10%
Edelweiss Greater China Equity Off-shore Fund1,886-26.59%22.57%18.67%
DSP US Flexible Equity Fund69113.50%19.08%16.19%
Edelweiss US Value Equity Offshore Fund82.9622.13%16.27%12.28%

(Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/fund-of-funds.html)

The above table shows the best international mutual fund has given returns of 19.87% CAGR in the last five years.

Who should invest in international mutual funds?

Following people should invest in international mutual funds:

  1. If you are looking to diversify your domestic stocks portfolio to include international stocks
  2. If you want to benefit from the depreciation of the Indian Rupee against the US Dollar
  3. If you want to invest in FAANG stocks and others (not available for investing in India) whose products and services you are using as a customer and now want to become an investor in them

Taxation of international mutual funds

In India, the taxation of international mutual funds is similar to that of debt mutual funds. The taxation of international mutual funds is as follows:

Short-term capital gains (STCG) tax:

  • Incase international mutual fund units are redeemed within 3 years of investing, the short-term capital gain (STCG) will come into effect. The short-term capital gain (STCG) will be added to your overall income and taxed as per the income tax slab that you fall in. 

Long-term capital gains (LTCG) tax:

  • If your international mutual fund units are redeemed after 3 years of buying, long-term capital gain (LTCG) will kick-in @ at 20% with indexation benefit or 10% without indexation.

Risks involved in international mutual funds

International mutual funds are exposed to risks of the home country. For example, if an Indian international mutual fund is investing in US stocks, then the mutual fund will be exposed to risks of the US economy. Some of these risks include economic slowdown, political uncertainty, inflation, etc. 

International mutual funds are also exposed to currency risk. The Indian Rupee depreciation against the US Dollar will enhance your returns. But, the Indian Rupee appreciation against the US Dollar will reduce your net returns. You should also consider the expense ratio of international mutual funds. Most Indian international funds follow the fund of funds (FoFs) model for which the expense ratio is on the higher side.

Return potential of international mutual funds

In the earlier section, the table shows how the top international mutual funds have given returns of around 20% CAGR in the last five years. These are very good returns.

(Source: https://www.miraeassetmf.co.in/docs/default-source/product-presentations/mirae-asset-nyse-fang-etf-fof-dec-2021-presentation.pdf?sfvrsn=c2eff52_2)

The above table shows in the last 11 years, the US market has given the highest returns seven times. India has been the best-performing market on only two occasions. So, Indian investors can benefit from superior returns from international markets by investing in international mutual funds.

While investing in international mutual funds, you should start a long-term systematic investment plan (SIP). You will benefit from the power of compounding in the long run. Compounding can help you create wealth and achieve your financial goals.

Advantages of international mutual funds

Some of the advantages of international mutual funds include:

  1. They have a very low correlation with domestic markets. Hence, they help you diversify your domestic equity portfolio beyond your domestic country to international equities. They also provide you with a hedge against the domestic market.
  2. They enhance your overall returns due to the depreciation of the Indian Rupee against the US Dollar.
  3. They provide you an opportunity to invest in global companies that are not available for investing in India. For example, you have been using products and services of global companies such as Facebook, Google, Apple, Coca-Cola, Visa, etc. International mutual funds allow you to invest in these companies whose products and services you have been using for a long time.

Reasons to invest in international mutual funds

Some of the reasons for investing in international mutual funds include:

  1. Asset allocation: As part of the asset allocation strategy, you must diversify your investment portfolio into various asset classes such as equities, debt, gold, real estate. You can further diversify your equity portfolio into domestic equity and international equity. Both have low correlation and can act as a hedge against each other.
  2. Benefit from the growth of global companies: Companies such as FAANG and others listed in the US have experienced good growth in the last few years and are expected to do the same for the foreseeable future. However, as these companies are not listed on Indian stock exchanges, you can only participate in their growth story through international mutual funds.

To start investing in liquid mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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