International Fund

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

International funds are equity funds owned and managed by people from outside the country who want to invest in securities other than their home country. This could be another way for the trader to access international markets and thereby widen their investment profile while retaining the services of local professionals.

Global investments carry the potential to generate capital appreciation. Investors who want real exposure to the international stock market must invest in international funds and indexes. Investors who want to participate in foreign markets but lack the money to do so can consider international equity funds a great investment choice.

International Fund Definition

International funds are equity funds invested in countries other than the investor's home country. They are managed and owned by experts who advise investors on investment strategies.
International investments can aid in the diversification of the portfolio and capital appreciation of the assets in the portfolio.
Along with global exposure, these investments have economic advantages when invested in a country with better growth rates. They, however, are subjected to the negative influence of geopolitical factors in the global market.

International Fund Explained

International funds are equity funds owned and managed by traders for investors outside the country who want to invest there. These experts provide opinions on the stocks invested in the international markets. Investments in international markets are popular due to their earning potential. However, the returns, like in other markets, depending on investors' risk-taking capacity.

International funds can be generally classified into the following types:

#1 - Global Funds

Although global and international funds can be easily mistaken for each other, they are not the the same. Global funds invest in financial instruments worldwide, including in their home country. On the other hand, international funds invest in financial instruments worldwide, excluding the investor's home country.

#2 - Regional Funds

They are investments made in companies from particular geographical locations across the world.

#3 - Country Funds

These funds only invest in financial instruments belonging to one specific foreign country. While this may require extensive research, investing in a good economy will give the investor good returns.

#4 - Global Sector Funds

These funds are utilized to promote a particular sector. Therefore, these are funds invested in companies that belong to a particular sector worldwide.

Example of International Fund

Jack is a resident of the United States, and he wishes to invest in "bright light" industries that focus on developing gadgets that can make mundane daily life easier. The issue is that the company was based in the U.K. However, he decides to invest in it, though doubtfully. He had bought 100 shares worth 10 Euros each. The dollar value at that time was $70 per euro. His total investment is 100*10*70, which will be $70,000. After a year, the euro rises to 80 on the dollar ($80 = 1 euro). Now the return Jack will receive is $80,000. He made a $10000 profit on his investment. This is an example of the benefits of investing internationally.

Jill made a similar investment in a company based in Spain from the United States. With the recent Russia-Ukraine war (2022), there has been a change in the geopolitical atmosphere of countries across the world. Unfortunately, the company in which she had invested was badly affected due to the war. There were losses in the company, and the share prices fell along with negative sentiments prevailing in the market. So, naturally, her investment resulted in losses. This is one of the negative impacts of investing in other countries.

Advantages

The following are the advantages of an international fund investment.

#1 - Diversification

If investors invest only in their home country's stocks, the overall performance of their home country's economy will have a huge impact on the investments. Suppose there is another country where the economy is growing. Investors will benefit from that growth. This way, the negative and positive factors balance the portfolio, preventing it from showing high losses.

#2 - Cost-Effective Portfolio

Some markets would have already hit the point of high growth, while some might be waiting to take off. Therefore, thorough research should be done to identify stocks or international index funds in countries with the potential to outgrow the investment with high returns. This creates a cost-effective investment portfolio.

#3 - Access To International Markets

One advantage of these funds is access to various companies outside an investor's home country. For various reasons, some countries may have companies researching and developing advanced technologies that may not be available in their home country. This route helps in not missing early investment opportunities. In addition, they are accessible with the help of experienced fund managers, which is an added advantage.

#4 - New Possibilities

There are many new prospects available through international investing. For instance, one can buy a stock if they agree with an international innovator's vision and have exposure to a company's stock. An international fund index is an option here too. Those who are looking for unique investments can use geographic diversity to invest in a variety of markets. These markets should be the ones they think will generate more future value than just what is offered in the domestic country.

Factors

Investors should consider these factors before investing.

#1 - Different Risks and Risk Patterns

Depending on the country, stocks and bonds have varying risk and return profiles. Spreading funds throughout many businesses reduces the likelihood of losing money overall if one investment fails. Moreover, currency risk is an inevitable part of these investments. Let's say a person based in the U.S. invests in the U.K., and the dollar falls against the euro, then the Net Asset Value (NAV) increases. This happens due to more dollars for each euro (profit) and vice versa if the dollar rises and NAV falls. Conversely, investors' international stock performance can suffer if the U.S. dollar appreciates against other currencies.

#2 - Costs

Creating a brokerage account that allows direct access to foreign markets can be expensive. Sometimes, the domestic currency may be of a lesser value and can seem high compared to the units of foreign currency.

#3 - Geopolitics

Progressive government leadership, tax incentives, or even access to natural resources and policies can permit industry to flourish more rapidly in outside markets than in domestic markets. However, the geopolitical changes in the country influence investor decisions and hence the performance of the market. Any investments, therefore, shall be made only after watching the current situation prevailing in the country.

#4 - Multi-Economic Advantages

World events have different impacts on different countries. For example, when one country's economy does not perform well, another economy might have good growth rates, giving the investor a chance to diversify the portfolio. This, in turn, helps save high losses in the portfolio.

#5 - Tax Benefits

Tax benefits may exist for investors according to the local laws of each country and the type of treatment these investments receive. For instance, the nation where the stock was issued would probably withhold a portion of the income gained for local taxes; some levy a capital gains tax (as in the United States). In addition, there may be charges reimbursed for any foreign taxes paid on filing income taxes as a foreign tax credit or deduction.

Market opinions regarding the best international funds may be irrelevant individually and can differ depending on how much they are willing to take. Individuals shall therefore conduct thorough research according to one's preferences before coming up with the list of best international mutual funds that can guarantee them good returns.

Frequently Asked Questions (FAQs)

1. What are international funds?

They are financial instruments used to invest in equity in the international markets and are generally owned and managed by experts in the field. The professionals suggest investments to investors from other countries who want to invest in their country.

2. Why invest in international funds?

The foremost advantage of investing outside the home country is diversification. Investing in different countries helps mitigate the risks of relying on one country's economy. In addition, diversification provides an opportunity to compensate for the loss incurred in one country with another.

3. Are international funds a good investment?

The answer depends on the investor. If they have extra cash to invest after saving for an emergency and other low-risk investments, they can go ahead with risky investments. Then again, these are suggested by experts and therefore have the potential to give great returns.

4. How to do international fund transfers?

The procedure to be followed regarding the international fund transfer, if permitted by countries, can be found on the respective government websites. The same can be referred to for executing these transfers.