Understanding International mutual funds


International mutual funds as a category have gained both prominence and acceptance in recent times by the average retail investor.

This should not come as a surprise given the recent outperformance by international mutual funds compared to the Indian markets.

So keeping in trend with investors hopping on to the latest fad that has outperformed, aum for international mutual funds has spiked up considerably.

As unhealthy as this trend may be, it is here to stay considering recent returns trumps planning when it comes to most retail investors and their portfolio creation.

best mutual funds


What is an international mutual fund?

An international mutual fund is any fund that invests outside Indian markets.

This could be both region specific or theme specific.

An international mutual fund can either invest directly or in another fund, better known as fund of fund.

Their correlation with the Indian markets would differ depending upon where you invest geographically.

The lower the correlation, the better for diversification.

They work as a very good hedge against currency volatility.

Additional reading: Click Here to read all about the various types of mutual funds


International mutual funds in India (types)

International mutual funds in India can be divided in the following manner:

Global fund

A global fund is one which can invest globally, meaning it is not restricted by a region or country.

Country fund

A country fund is one which will invest only in a particular country like Japan, China, Brazil, etc.

Regional Fund

A regional fund is one which will invest only in a particular region like say Europe, Asia, etc.

Thematic & Sectoral fund

Thematic and sectoral funds are global funds that invest in a particular theme or sector like say natural resources, technology, water, etc.

There are certain international mutual funds that invest in certain themes but are restricted to a certain region.

Like for example technology related fund investing in companies based in the US.


Are you investing in the right mutual funds?

Difference between Global and International mutual fund

An international mutual fund is one that invests in specific countries or regions.

A global fund on the other hand is not restricted by specific countries or regions.

A Europe based fund is an international mutual fund since it invests only in Europe, a specific region.

A global brand fund or a global mining fund is a global fund since it invests across the globe with no region restrictions.



International mutual funds taxation

International mutual funds for taxation purpose are treated as debt mutual funds.

The taxation rules that are applicable on debt mutual funds are applicable on international mutual funds too.

It is the same for all international mutual funds irrespective of the theme or geography.

Meaning a European based international mutual fund will be taxed just as a US, emerging markets or Asia based.

A technology based international mutual fund will be taxed in the same manner as a natural resources fund.


Taxation for international mutual funds can be better classified further into LTCG & STCG


Long term capital gains tax is charged on gains from international mutual funds held for more than 36 months.

The LTCG rate is 20% after indexation.



Short term capital gains tax is charged on gains from international mutual funds held for less than 36 months.

Short term capital gains are added to your income and taxed as per your income tax slab.

These funds are also charged 0.005% stamp duty like any other mutual fund.


Additional reading: Click Here to read more about some mutual fund mistakes you can avoid


Advantages of International mutual funds

Low Co-relation

International mutual funds have a very low co-relation to Indian based mutual funds.

This stands true for global funds as well.

Due to a low co-relation, they provide diversification in the true sense.

More often than not investors invest in various funds with the aim of diversification but end up unknowingly investing in the same set of companies or strategy via different schemes.



The biggest advantage of international mutual funds is that they provide diversification.

They are very rarely the first fund of a new investor or even take up the major portion of anyone’s portfolio.

They are usually an afterthought or take up a very small portion of a mutual fund portfolio.

They invest in companies and markets that Indian based mutual funds do not.



An international mutual fund can give you exposure to companies and markets that an Indian based mutual fund cannot.

For example, it can invest in a search engine giant like Alphabet which is not possible with Indian based mutual funds.

Another advantage with exposure is the option to pick a company with an attractive valuation which is listed across various geographies.

For example, Nestle is listed both in India as well as in foreign markets.


Are you investing in the right mutual funds?

Disadvantages of international mutual funds


For the purpose of taxation, international mutual funds are treated as debt mutual funds.

This makes it less desirable than Indian based equity mutual funds which have a far more attractive taxation system.

If you are an investor that frequently invests and redeems based on random advice then this makes it even far less desirable.


Understanding the market

Whatever international mutual fund you pick, understanding the fund and its underlying strategy is very important.

This is as true for an international mutual fund as it is for an Indian based mutual fund.

Sadly far too many investors go about choosing funds based on their recent returns with no understanding and end up frequently entering and exiting funds.

This only adds to their charges with exit loads and taxation.


         You should not be investing in international mutual funds merely because you can.

         You should only if you have a plan and a very good understanding of the fund and the underlying strategy of the fund.

        Sadly many investors venture into international mutual funds out of fear of missing out, that is not a good enough reason to invest in international mutual funds.


For portfolio enquiriesemail us with your doubts at info@themutualfundguide.com

Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

Copyright © 2021  The Mutual Fund Guide, All rights reserved 

My Instagram