Investing in global funds

In today’s connected world, investing in markets outside one’s own country has become increasingly accessible, especially through global funds. With these funds, investors can diversify their portfolios and seek growth in foreign markets while potentially balancing risks. But before starting with global funds, understanding their features, structure, and tax implications is essential. 

Many investors view global funds as an opportunity to go beyond local markets, and using a trading platform makes it even easier to manage these funds in real time. Here’s a comprehensive look at global funds, their meaning, and how they can fit into a share market investment strategy.

What is the meaning of global funds?

The meaning of global funds can be understood as mutual funds or investment schemes that invest in companies and assets located across various countries, without any restrictions on the regions they cover. This means they differ from international funds, which typically exclude the investor’s home country. Global funds include investments both in foreign markets and in the domestic market. This broad scope enables them to be diverse in asset allocation across geographies, adding flexibility to investment portfolios.

Investors interested in broadening their share market investment through such funds can access sectors and companies around the world, often through accessible and regulated trading platforms.

What are the types of global funds?

Global funds are often categorised based on where and how they invest. Here are some common structures:

1. Direct investment funds: In this structure, a local fund manager directly manages and invests in foreign stocks and assets, actively overseeing the portfolio.
2. Feeder funds: These funds pool money from investors domestically and transfer it to an offshore fund managed by another entity.
3. Funds of funds (FoFs): These funds spread the investment across various international funds, providing access to a wide range of markets and sectors.
4. Mixed funds: Some global funds combine investments in both domestic and international markets, making them a great option for investors.

Global funds may also focus on specific regions, sectors, or themes. For example, a global funds example might include a fund that invests solely in technology companies across multiple continents, suitable for those optimistic about the sector’s growth potential.

How can investing in global funds help diversify your portfolio?

Investing in global funds can add a layer of diversification to portfolios by spreading investments across various markets. This geographical spread helps mitigate the concentration risk associated with investing only in a single country. Investors can also diversify by sector, gaining exposure to industries that may not have a strong presence in their home country. A trading platform provides real-time access to monitor these diverse assets across regions, aiding investors in making informed decisions.

What are the risks and returns associated with global funds?

Like any investment, global funds come with both potential benefits and risks. The performance of a global fund is influenced by various factors, including economic stability, political situations, and currency exchange rates in the invested countries. Here are some key considerations:

• Currency risk: Since investments are in foreign currencies, fluctuations in exchange rates can impact returns. A strengthening domestic currency might decrease returns, whereas a weaker currency could amplify gains.
• Market conditions: Each country has its own economic and political environment, which can affect market conditions. Researching and understanding these factors is essential, especially when choosing a global fund.
• Inflation hedge: Global funds can also help hedge against domestic inflation, as gains from strong-performing international markets may offset local inflationary pressures.

Returns from global funds can vary significantly based on the fund’s underlying investments and the market conditions in the countries it covers.

What are some examples of global funds?

A few examples of global funds that are commonly offered by Indian mutual fund companies include the following:

• ICICI Prudential Global Stable Equity Fund: This fund aims to achieve long-term growth by investing in equity securities from various international markets.
• Edelweiss Greater China Equity Offshore Fund: This feeder fund primarily invests in Chinese markets, offering exposure to one of the world’s fastest-growing economies.

These examples show how global funds allow investors to gain exposure to multiple markets, creating opportunities to participate in sectors and countries with high growth potential.

Is investing in global funds suitable for all investors?

Global funds may be suited to investors with a higher risk tolerance, given the added variables of currency exchange rates and diverse market conditions. For those looking to diversify their portfolio and access high-growth markets globally, these funds can be an attractive option. However, investors should consider their investment horizon, risk tolerance, and financial objectives before investing in global funds.