Why Should You Have a Global Fund in Your Portfolio?
What are global mutual funds?
Global mutual funds are managed at different levels, and the level determines the type of fund:
1. Global Direct Investment:
Here, the fund is managed by the local fund manager, who takes all the decisions to invest or rebalance the portfolio.
2. Global Indirect Investment:
These are global funds without a direct investment option. They can be further divided into two types –
i. Feeder Funds:
A feeder fund is an investment vehicle that pools the capital of investors and invests or 'feeds' them into an umbrella fund or master fund, which directs and oversees all investments held in the master portfolio. This structure is commonly used by private equity funds and hedge funds to pool investment capital.
ii. Fund of Funds (FoF):
Also known as a multi-manager investment, FoF is a pooled investment fund that invests in other types of funds. Its portfolio contains different underlying portfolios of other funds. FoFs usually invest in other mutual funds or hedge funds.
Why should you include global funds in your portfolio?
1. Diversification and long-term wealth creation potential:
Global mutual funds have the potential to generate good returns in both the short- and long-term, depending on the market. Global markets could provide much-needed diversification to your investment portfolio, helping you tap into economic growth around the world.
2. Lower risk:
When you invest in global mutual funds, you reduce risk to a large extent. Every economy has its benefits and drawbacks, so when you invest across multiple economies, you can bank on the positives of each nation and avoid the pitfalls elsewhere. Your risk gets balanced through diversification.
3. Hedge against inflation:
Since global funds invest in securities across the world, they can protect you from inflation. Market-linked returns give you the ability to outpace inflation.
4. Exposure to foreign currency as an asset class:
Foreign currencies have steadily appreciated against the Indian Rupee in recent times. Investing in global funds (which convert INR into US Dollar while investing in foreign stocks) can help you benefit from US Dollar appreciation against the Indian Rupee.
What to keep in mind when investing in global funds
1. The returns and risk of the portfolio depend on macroeconomic factors. While choosing the funds, make sure you understand the macroeconomic environment and choose funds that invest in stable markets and economies.
2. Currency risk is also a factor that could affect the returns of the funds.
Understanding taxation on global funds
Global funds are referred to as non-equity funds for taxation in India. The applicable taxation rules are as follows:
1. If you hold an investment for less than three years, it will be taxed as per the short-term capital gain tax rate. The rate is decided as per the tax slabs of that particular year.
2. If you sell the global funds after three years, you will have to pay a long-term capital gain tax at 20% with indexation benefit (which means profit is adjusted as per inflation to get an income tax advantage).
Global mutual funds are an excellent way to maximise diversification, while reducing risk and creating potential for better returns. But it’s a vast canvas, and choosing the right fund house and the right fund is important to help you make the most of the opportunities across the world. Consult a financial advisor for expert guidance, and get ready to go global.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
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