A global mutual fund pools money from investors to buy securities across different countries, including the investor’s home nation, earning the name "world funds." These funds offer key benefits: they enhance portfolio diversification by spreading investments across various international securities, reducing concentration risks; they serve as a hedge against domestic inflation by providing exposure to global markets; and they enable investors to benefit from global economic growth and access opportunities beyond their local market. Depending on their strategy, global mutual funds may focus on a single asset class, such as equities or debt, or invest in a mix, including ETFs.
Continue reading to get to know what a global fund is, its various benefits and some of the factors you need to consider before investing in it.
What are global mutual funds?
Global Mutual funds are a type of mutual fund that invests in a wide range of securities from across the globe including the ones from the domestic market. The list of securities that these funds invest in includes stocks, debt instruments or Exchange-Traded Funds (ETFs), among others.
There are many different types of global mutual funds. For instance, some funds may invest in just a single asset class like equity or debt, whereas others may invest in a mix of different asset classes for better diversification.
Many investors often confuse global mutual funds with international mutual funds. Although these two types of funds may have certain similar objectives, they are not the same. International funds invest in a diverse portfolio of assets in global markets other than the domestic market. Global funds, on the other hand, invest in various securities across both the domestic market as well as the international markets.
Features of Global Mutual Funds
1. Portfolio Diversification
Global mutual funds allow investors to diversify beyond domestic markets, reducing concentration risk by investing across multiple countries and asset classes.
2. Risks & Returns
- Returns depend on market conditions and economic stability in different countries.
- Currency fluctuations can impact overall fund performance.
- Investing in stable markets can help mitigate risks.
3. Inflation Protection
These funds serve as an effective hedge against inflation by offering exposure to global economies with strong growth potential.
4. Taxation Rules
- Short-Term Gains (less than 3 years) – Taxed as per your income tax slab.
- Long-Term Gains (more than 3 years) – Taxed at 20% with indexation benefits.
Types of Global Mutual Funds
- Global Equity Funds – Primarily invest in international stocks, offering exposure to global equity markets.
- Global Bond Funds – Focus on international bonds and debt instruments, aiming for stable income and capital preservation.
- Global Balanced Funds – Combine international stocks and bonds to provide a mix of growth and income.
- Sector-Specific Global Funds – Target specific industries like technology, healthcare, or energy, offering exposure to high-growth global sectors.
Structure of Global Funds
Global mutual funds are structured in different ways based on investment approach, geographic focus, and thematic strategy.
1. Based on Investment Approach
- Direct Investment – The local fund manager directly invests and manages the portfolio.
- Indirect Investment:
- Feeder Funds – The fund house collects investor funds and transfers them to an offshore fund for management.
- Fund of Funds (FoF) – Investments are made in multiple foreign funds rather than directly in individual securities.
- Mixed Equity Funds – Invest in both domestic and international markets, providing diversification and better tax efficiency while catering to moderate-risk investors.
2. Based on Geographic Focus
- Regional Funds – Focus on specific regions or countries, ideal for investors with insights into particular economies.
- Truly Global Funds – Invest across multiple countries worldwide, ensuring broad diversification.
3. Based on Investment Theme
Some global funds follow specific themes, such as energy, technology, or healthcare, investing in companies within that sector globally. These are suitable for investors confident in the growth potential of a particular industry.
Benefits of global mutual funds
Now that you are aware of the meaning of global mutual funds, let us discuss some of the key benefits of these investment options.
- Provides exposure to international markets
The primary objective of global funds is to provide investors with exposure to different markets, industries, and currencies. By investing in these funds, you can not only get access to developed and established markets but also the various emerging markets across the world. - Reduce the impact of market volatility
Global funds typically invest in a mix of different asset classes across different geographical regions. By diversifying across countries, these funds reduce the impact of market volatility and economic downturns in any single market. - Harnesses the potential of different markets
The potential of financial markets varies from one geographical region to another. For instance, the U.S. financial market is mature and offers stability to your portfolio whereas emerging markets such as India, Brazil and Indonesia offer more capital appreciation opportunities. By investing in assets across various regions, global funds let you harness the potential of all of the financial markets that they invest in.
How to invest in Global Mutual Funds?
Step 1: KYC Verification
- Click on ‘Invest Now’ to begin.
- Enter your PAN, Name, and Date of Birth (as per your PAN card).
- Accept the Mutual Funds Terms of Use to proceed.
Step 2: Email Verification
After completing KYC compliance, verify your email address.
Step 3: Bank Details Update
- Provide your Account Holder Name, Account Number, IFSC Code, and Account Type.
- A ₹1 deposit will be made to confirm your account.
Step 4: Provide Basic Information
Fill in details like Gender, Occupation, PIN Code, and Address.
Step 5: Upload Your Signature
Submit a digital copy of your signature for account verification.
Step 6: Nominee & FATCA Details
Complete nominee and FATCA details to finalize your portfolio setup.
Start Investing!
Once your account is set up, you can select mutual funds, choose between SIP or Lump Sum investments, and make payments via Net Banking, UPI, or NEFT/RTGS.
Risks of investing in Global Funds
Currency Fluctuations
Investing in global funds exposes investors to currency risk, as exchange rate movements can influence the value of international assets. If the home currency strengthens, returns on foreign investments may decline, whereas a weaker home currency can boost returns.
Geopolitical Uncertainty
Global investments are vulnerable to geopolitical factors such as political instability, regulatory shifts, and economic sanctions. These uncertainties can have a significant impact on the performance of international funds.
Market Volatility
International markets, particularly in emerging economies, can be more volatile than domestic ones. Sudden market fluctuations can lead to substantial price swings, affecting investment values.
Regulatory Variations
Each country operates under distinct regulatory and financial reporting standards. These differences can impact the transparency and reliability of financial data, creating additional challenges for investors.
Factors to consider before investing in a global fund?
Investing in a global fund is a major financial decision. Before you make any such decision, it is crucial to first consider certain key factors. Here is an overview of some of them.
- Investment objective
Some global funds may focus on long-term growth, whereas others may be focused on generating stable income. Therefore, the investment objective of the fund is one of the first factors you must consider. The fund’s objectives must always match your financial goals. - Risk profile
The risk profile of a global fund may vary depending on its exposure to different markets, currencies and asset classes. It is advisable to invest in a fund whose risk profile is in line with your risk tolerance and investment horizon. You could use a mutual fund compare tool to help you choose the right fund. - Liquidity
Some Asset Management Companies (AMCs) may have certain policies that restrict withdrawals. If you have to access your investments to meet emergency fund requirements, it is advisable to invest in global funds with high liquidity and little to no restrictions. - Fund expenses
The expenses associated with the fund are another major factor you need to consider before investing. Mutual funds with higher fees can erode returns over time. Therefore, it is ideal to invest in funds with lower expense ratios. - Track record
Although past performance does not guarantee future results, analysing the track record of a global fund can provide key insights into the fund manager’s expertise and the strategies they employ to navigate different market situations.
Global Mutual Funds vs. International Mutual Funds
Investors often wonder whether global and international mutual funds are the same. While they may appear similar, there is a key distinction between them.
- Global Mutual Funds invest in companies across the world, including those in the investor’s home country.
- International Mutual Funds focus on companies outside the investor’s home country, excluding domestic businesses from their portfolio.
For Indian investors, this means that global mutual funds include both Indian and international companies, whereas international mutual funds consist solely of foreign companies, with no Indian firms in the mix.
5 Good Global Mutual Funds in India
For Indian investors looking to invest in global mutual funds, here are some of the top-performing options based on 3-year returns:
- Invesco India – Invesco Global Equity Income FoF Regular-Growth
- Bandhan US Equity FoF Regular-Growth
- Motilal Oswal Nasdaq 100 FOF Regular – Growth
- Invesco India – Invesco Pan European Equity FoF Regular-Growth
- Nippon India Japan Equity Fund Regular-Growth
Conclusion
Global funds offer a convenient way to access international markets and diversify your investment portfolio. In addition to the exposure to other financial markets, these funds also invest in assets in the domestic market. This allows you to capitalise on potential growth opportunities across the entire globe.
However, before investing in a global fund, it is essential to consider factors like the investment objective, risk profile, investment horizon, performance track record and expenses in connection with the fund. This way, you can ensure that you make a well-informed investment decision that is in line with your requirements.
If you are looking for an easy way to invest in mutual fund schemes, visit the Bajaj Finserv Mutual Fund Platform today. With over 1,000 different fund options to choose from, you can surely find one that fits your requirements. Additionally, you can also compare the mutual fund returns of different schemes on the platform to help you make your decision easier.
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Disclaimer:
Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.
The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.
