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Monday, May 27, 2013

Global funds or International Funds to hedge Investment Risk

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INTERNATIONAL funds are schemes of mutual funds that invest their corpus into assets abroad.

Today, there is a range of equity-oriented international funds available for investors in the country. Most investors select only those funds that invest in the local equity and debt markets, and hence, there is a similarity that creeps into the portfolio. International funds offer a different perspective for investors and need some consideration.

Here are a few of the variety of goals that can be achieved through these funds.

Geographical diversification: One of the biggest benefits of using international funds is that there is diversification of amounts invested across different markets.

This ensures that the money is spread out geographically and while there is a chance that the world markets take a tumble at the same time, there is also a position, whereby, the situation of specific countries can ensure that there is a different effect that is felt in some parts of the portfolio.

This is another way in which diversification is undertaken because doing it across market caps and sectors might not be enough if there is a situation where the entire money is invested in a particular geographical market. This additional factor can be a plus point, especially when the portfolio is large and there is a need for the reduction of risks that keep rising over a period of time.

Specific country exposure: Looking at international funds also increases the choices for investors as they can select a particular country where they feel that the potential for growth is high for investment using these mutual funds. The good part is that investors in India have a choice with respect to choosing developed nations and even smaller countries for their investments through various international fund schemes available in the country.

There is a slightly higher bit of risk in this strategy because of the fact that if things do not work out well in this specific country, then your investment could take a hit. The other way in which exposures of various countries is obtained is by through an investment across a basket of countries.

Investors can choose either of the options depending on their risk appetite and ability to understand the manner in which these funds function.

Feeder funds: The choices for investors is very clear in deciding between funds that directly invest into equities abroad or those that invest in a feeder fund. The former has to select the investments on their own, which is where it is important for individuals to look at the fund manager. The experience of the fund manager to ensure that they are able to build and run a good portfolio is of paramount importance and needs the highest attention.

On the other hand, when it comes to a feeder fund, the situation is a bit changed due to the fact that there is already a foreign fund that is in operation.

The Indian fund just directs the money that it collects towards this fund. This provides an additional amount of confidence for investors because it is a fund manager who is conversant with the local conditions. They can also go and check in the past about the performance of the fund and how it has managed to tackle different situations. This can be a starting point for several investors who are venturing into this area for the first time, as it will also lead to lower risk and tension while investing.

Happy Investing!!

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