Mutual Funds is a simple method available with the investors (including small investors) to invest their funds in the market and at the same time have the benefit of diversification without availing the services of expensive experts.
This diversification of risk and returns can be extended from the national level to the global level and the benefit of increased horizon for returns can be availed. As of today, the investment in international mutual funds is limited to the reach of some high profile investors who can afford to obtain expert advice in this regard. Also, the RBI restrictions on the Indian mutual funds investing abroad have been steadily reduced in recent years.
For example, one of the requirements of RBI is that the banks including those not having operational presence in India are required to obtain prior approval from the Department of Banking Operations and Development, Central Office, Reserve Bank of India, Central Office Building, Shahid Bhagat Singh Marg, Mumbai, for soliciting deposits for their foreign/overseas branches or for acting as agents for international mutual funds or any other foreign financial services company, as per the liberalized remittance scheme.
Portfolio Consisting of International Investments
A portfolio consisting of both domestic and foreign investments provides superior returns at comparatively lower risk compared to one which only holds domestic ones. Additionally, the primacy of US stock markets has declined steadily over time. This is why investors cannot continue to restrict themselves to investing in domestic securities alone. International mutual funds are the best possible method to invest in this particular manner because they hold a wide variety of domestic and foreign securities, significantly lowering the associated risk.
Furthermore, as a result of the aftereffects of the recent global recession faced by the major economies, it is more advisable to go in for global investment options as every economy has its own risk and return results and a globally-diversified portfolio can sometimes prove to be a boom for the investor.
Although there are also certain downsides to investment in mutual fund. Major one being that the mutual fund concept in India, though not that new, is a bit raw and generally the level of expertise demanded/ expected by the investors is not met upto the mark. Secondly, with the hit of the recent global recession, the stock movement in various economies is expected to be not so investor-friendly.