Reduce Country-Specific Risk With International Funds

Reduce Country-Specific Risk With International Funds

- Sudipta Mittu

While the Indian markets have done well -- the Nifty 50 has given a return of 15.71 per cent over the past one year -- many international funds have also given good returns to investors over the past year. Investors who have adequate exposure to the Indian market should think of taking exposure to some of the international funds available in India.

Reasons for sound performance:

International markets have been doing well over the past one-year due to two reasons. The first is that interest rates usually remain low in the developed world and that is conducive for equities to do well. Also, several emerging markets, which are major exporters of commodities, did poorly in 2014-15 because commodity prices had fallen. But now commodity prices have recovered and stabilised, so these markets have also bounced back from their lows.

Why invest internationally?

Your primary reason for investing in international funds should not be the short-term performance of one market or the other. You should not invest because a particular market has done well in the recent past. The primary reason should be to diversify your portfolio and reduce country risk.

For most retail investors, the overwhelming portion of their portfolio is invested in the Indian market. In the years when Indian equity markets don’t do well, the portfolio performance of these investors takes a knock. By investing internationally, they can reduce their country-specific risk. To get proper diversification, Indian investors should invest primarily in international funds of those countries that have a low correlation with India.