The Benefits of International Funds: Grow Beyond Borders

Jun 17

3 min read

Why invest only in India, when the world is your opportunity?

Most Indian investors build portfolios heavily tilted toward domestic stocks and mutual funds. And while India offers long-term growth potential, geographical concentration comes with its own risks.

That’s where International Mutual Funds come into play.

These funds offer exposure to global markets—from the U.S. and Europe to emerging Asian economies—allowing you to participate in the world’s leading companies, diversify currency risk, and build a more balanced portfolio.

Let’s explore what international funds are, their advantages, and how to integrate them smartly into your long-term strategy.

1. What Are International Mutual Funds?

International funds are mutual funds that invest in companies or indices outside India. They either:

Directly invest in global stocks (e.g., Apple, Tesla, Google)
Mirror the performance of foreign indices (e.g., S&P 500, Nasdaq 100, MSCI World Index)
Invest through feeder funds that channel money into offshore schemes

You get access to the global economy—without opening a foreign account or dealing with forex directly.

2. Key Benefits of International Funds

✅ A. Global Diversification

Avoid overexposure to Indian markets. Global economies behave differently—so when Indian equities underperform, international markets may hold steady or rise.

Diversification is not just about sectors—it’s about locations too.

✅ B. Exposure to Global Giants

Indian markets don’t offer direct exposure to global leaders like:

Apple
Microsoft
Amazon
Alphabet (Google)
Meta
Nvidia
Tesla
Nestlé, LVMH, and more

International funds let you invest in companies leading global innovation and consumption.

✅ C. Currency Diversification

Most international funds are USD-denominated. So if the INR depreciates (as it has historically), your global investment gains an additional edge.

The falling rupee = potential booster for your international fund returns.

✅ D. Lower Correlation = Lower Portfolio Risk

International markets don't move in sync with Indian markets. This reduces overall volatility and makes your portfolio more resilient.

✅ E. Access to Innovation and New Themes

Global funds often focus on cutting-edge sectors like:

Artificial intelligence
Electric vehicles
Clean energy
Global healthcare
Blockchain and fintech

3. Performance Snapshot: India vs. Global Funds

Index / Fund Type	10-Year CAGR (Approx)*
Nifty 50	~12%
S&P 500 (US)	~11–13% (USD returns)
Nasdaq 100	~15% (high growth)
MSCI World Index	~10–11%

Returns vary by timeframe. INR depreciation can further boost returns from international funds.

Global doesn’t always outperform—but it moves differently, which is valuable for long-term stability.

4. When to Consider International Funds

✅ When you already have a strong India-based core portfolio

✅ If you want to hedge against rupee depreciation

✅ When you want to participate in sectors not available in India (e.g., global tech)

✅ To reduce dependency on domestic market cycles

✅ To give your portfolio a global edge over 5–10 years

5. How to Invest in International Funds

You can choose from:

Feeder Funds: Indian mutual funds that invest in specific foreign mutual funds
Direct Global ETFs: Via international platforms (requires LRS compliance)
Fund of Funds (FoF): Indian funds that pool and invest globally

Popular categories:

U.S. Equity Funds (S&P 500, Nasdaq 100)
Global Innovation / Thematic Funds
Emerging Market Funds
Developed Market Diversified Funds

6. Key Risks and Considerations

⚠️ Currency Risk: INR appreciation can reduce returns (though historically, INR depreciates gradually)

⚠️ Geopolitical & Regulatory Risks: Global factors outside India’s control

⚠️ Different Taxation: Treated as non-equity funds in India (see next point)

⚠️ Limited Investment Headroom: RBI caps on overseas fund exposure can cause temporary pauses in SIPs

International exposure adds value—but should not exceed 15–20% of your total equity portfolio.

7. Taxation of International Mutual Funds

Since international funds are classified as non-equity funds in India:

Short-Term Capital Gains (<3 years): Taxed as per your income slab
Long-Term Capital Gains (>3 years): Taxed at 20% with indexation

Note: This is different from Indian equity funds, which enjoy 12.5% LTCG on gains above ₹1 lakh after 1 year.

Plan your holding period smartly to make the most of indexation benefits.

TL;DR — Too Long; Didn’t Read

International funds invest in global companies and indices, offering diversification and currency advantage
They help reduce risk, access innovation, and hedge against rupee depreciation
Ideal for 5+ year horizons and best kept at 10–20% of your total portfolio
Returns depend on both global markets and INR/USD movement
Taxed like debt funds in India—plan redemptions accordingly