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How do I pick the right international mutual fund?

1. How do I pick the right international mutual fund?

In the world that we currently live in, it is easy to have access to all things international. From phones and food to entertainment and banking, many of us have the luxury of choosing from a range of international options. Similarly, there is also a rising interest in international investing. From that perspective, international mutual funds have played an important role in giving Indian investors access to overseas investments.

International mutual funds invest in assets like stocks, bonds, commodities, as well as other funds that are available in a foreign country. International mutual funds have multiple benefits, some of which include:

  • Diversification
  • Exposure to high-growth international opportunities
  • Enhancing the portfolio’s risk-adjusted returns
  • Hedge against a depreciating rupee

As an Indian investor, you don’t need to be concerned about selecting the right stock on an international exchange or worry about identifying the right international themes and regions. Investing in these funds is as easy as investing in a domestic mutual fund. However, even though international mutual funds offer multiple benefits and are easy to invest in, you still need to understand how to pick the right international mutual fund.

Top things to check when investing in an international mutual fund

  • Ensure that it helps in diversification: You already have an investment portfolio that gives you exposure to certain types of investments and carries a particular level of risk. You must ensure that the international mutual fund you choose reduces the overall risk of your portfolio and does not lead to concentrated exposure.
  • Have a long-term investment horizon: If you are choosing to invest in international equity funds, then you should ideally have an investment horizon of at least 5 to 7 years. International investments can face several risks like geopolitical or currency risk. In order to ensure that these risks do not have a large impact on your portfolio, it is best to hold these investments for at least 5 to 7 years.
  • Identify the category that best suits your requirements: There are many different types of themes and options that are available. For example, you can invest in a US technology fund to benefit from the growth of US technology companies. Or, you can invest in region-specific funds like US equities or Greater China equities. However, before investing, you should know and understand the category in terms of return potential and risk.
  • Compare performance: While past performance is never a guarantee of future performance, it might be a good idea to compare schemes and check who has been managing them, consistency in fund management teams, and the reputation of the AMC.
  • Check the expense ratio: Generally, the expense ratio charged by international mutual funds for managing the fund is higher than that charged by domestic mutual funds. Be sure to check the expense ratio before making the investment decision.

International mutual funds are usually better suited for investors who already have some mutual fund investments. A good way to invest in international mutual funds is through the Systematic Investment Plan (SIP) route that will allow you to invest a fixed amount of money into the international scheme of your choice and as per time intervals that suit you best. The good thing is that you can start a SIP in an international mutual fund with as low as Rs. 500. All you need to do is visit the AMC website, a mutual fund distributor, or one of the many online platforms and purchase units in your chosen scheme.

2. What happens if I miss my SIP?

If you are a mutual fund investor then you definitely already know about Systematic Investment Plans (SIPs). For those who are not aware, SIP is a way to invest a fixed amount of money into a mutual fund scheme of your choice and at periodic intervals that suit you best. These intervals could be fortnightly, monthly or even quarterly.

SIPs are a popular mode of investing as they have multiple benefits including compounding, rupee cost averaging, no need to time the markets, and disciplined investing. SIPs are considered as long-term vehicles of wealth creation as they allow you to reduce the impact of sharp price movements on your investment portfolio and help you potentially create wealth through the power of compounding and rupee cost averaging. However, just like markets move up and down, we also go through different phases in life. It might happen that you might not be able to pay for an SIP or miss an SIP. What do you do then?

  • First thing, do not panic. Your investment scheme will not get dismantled just because you have missed out on a payment nor two.
  • You also need not worry about the money that has already been invested via the SIP. It will continue to stay invested and earn returns.
  • Another thing to know is that if you missed your SIP instalment in one month, you will not be asked to pay that instalment in the next month.
  • The fund house will also not penalise you if your bank does not have enough funds because of which the SIP payment is not made.
  • However, your bank may penalise you for dishonouring the auto debits.

Having said that, the most important thing to remember is that you can miss a maximum of 3 consecutive SIP payments without any risk of your SIP turning inactive. If you miss more than 3 consecutive payments, then the fund house can choose to make your SIP inactive.

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