Due to advent in internet technology, investing in mutual funds has now become quite easy. Nowadays, an Indian investor sitting here in India can invest in overseas markets. This was not possible a few years ago. Indian investors were limited to traditional investment avenues like bank fixed deposits and Public Provident Fund. In mutual funds too there wasn’t much diversification. But after market regulator SEBI’s (Securities and Exchange Board of India) revaluation of mutual fund guidelines, investing in them has become a lot easier. Every mutual fund scheme has a defined investment objective. Thus, investors can go through various mutual fund schemes and invest in the one whose investment objective syncs with that of yours. Every mutual fund scheme carries a different risk profile. For example, debt funds are known to carry a low risk profile because they invest in fixed income securities. Hybrid funds offer a balanced portfolio by investing in both equity and debt asset classes.
Global funds are gaining a lot of attention these days because of their unique investment portfolio. These funds invest in equity and equity related instruments of companies which are listed in countries across the globe. These companies may or may not offer their products or services to the Indian consumer.
Want to invest in overseas mutual funds to achieve your life’s financial goals? Here are seven things that you should ask yourself before investing in global mutual funds:
Are the global funds you are planning on investing in under experienced fund management? A fund management consists of fund managers, analysts and other team members whose core responsibility is to allow the fund to function in a smooth manner. The fund managers are responsible for implementing a strong investment strategy to help the fund’s portfolio to generate income. Without a proper fund management, a mutual fund may or may not be able to achieve its true potential.
The main reason people invest in mutual funds is because they offer diversification through correct portfolio diversification. Does the global fund you are investing offer enough diversification? In which asset classes a global fund invests if extremely important to understand whether it will generate income over the short term or long term. Investors need to know where their money is being invested.
- Check for fund’s past performance
Although it is true that a global fund’s past performance may or may not reflect on its current or future performance, investors are expected to dig a little in the fund’s past. Whether the fund has been consistently underperforming or outperforming can only be understood by studying the fund’s history. Investors should generally consider a mutual fund scheme that has been a consistent performer. Because a consistent performing fund is always a good option as compared to a top performing global fund.
Since the fund is investing in global markets, it may or may not carry a high expense ratio. Understanding the expense ratio of any mutual fund is important because in the long run it can have a negative impact on your long term capital gains.
An investor’s risk appetite is their ability to invest in a particular scheme carrying a certain risk appetite with the hope of generating income through that investment. Investors need to understand their boundaries when investing in highly volatile markets and hence one should determine their risk appetite before investing in global funds.
There are certain mutual funds that invest in securities that only mature after a certain period of time. If you withdraw you fund units prematurely, you might face losses. Thus an investor should only invest in a global fund if their investment horizon is in sync with the number of years a fund requires to show it’s true potential.
These are some of the factors which investors should keep in thought before investing in global markets. They should also consult their financial advisor for better understanding.