Domestic Vs Global Vs International Funds- Know The Differences

Mutual funds can provide exposure to funds within the country as well as across the globe. When looking for geographic diversification, you might come across funds that are domestic, global and international. Each of these funds caters to different financial goals, risk appetites and market exposures. But how exactly do they differ?

Read on to know the difference between these funds as it can help you make more informed investment decisions.

• Table of contents

• Global funds
• International funds
• Benefits of international funds
• Challenges of international funds
• Domestic funds
• Advantages of domestic funds
• Limitations of domestic funds
• Investing in abroad funds
• Risks vs. diversification:
• The tech advantage

Global funds

Global funds offer you exposure to investments around the world, including your home country, meaning you can access companies and industries in India as well as abroad. For instance, global funds can include shares of leading international tech companies alongside Indian stocks. These funds offer diversification into international markets while still maintaining a presence in the domestic market.

1. Broad diversification: Unlike domestic or international funds, global funds do not limit investments to a single country or region. They provide a mix of domestic and foreign assets.
2. Currency dynamics: Since these funds include foreign investments, currency fluctuations can impact potential returns.
3. Sectoral opportunities: Global funds often provide access to sectors with high growth potential which may have limited representation in domestic markets.

You could consider global funds if:

• You want exposure to both domestic and international markets.
• You’re looking to mitigate the risk of over-relying on one region’s economy.
• You’re interested in sectors that are under-represented in India.

International funds

International funds focus exclusively on foreign markets, offering you the opportunity to invest in companies outside India. These funds can be a suitable way to diversify your portfolio geographically and mitigate country-specific risks, such as economic slowdowns or political instability.

1. Exclusive foreign exposure: Unlike global funds, international funds invest only in companies outside your home country.
2. Focused strategies: International funds often target specific regions (e.g. Asia-Pacific, Europe) or themes (e.g. emerging markets, developed markets).
3. Higher currency risk: Since these funds have no domestic exposure, the impact of currency fluctuations is higher compared to global funds.

Also Read: A beginner's guide to index funds

Benefits of international funds

• Access to global leaders: You can invest in global giants which might be inaccessible through domestic funds.
• Hedging against local risks: When the Indian economy faces challenges, international funds may help balance overall potential returns.

Challenges of international funds

• Regulatory differences: Different countries have varying regulations, which can affect fund performance.
• Limited local expertise: Fund managers may have limited expertise in certain regions, impacting decision-making.

Domestic funds

Domestic funds invest solely in companies listed within India.

1. India-focused investment: Domestic funds invest in Indian equity, debt, or hybrid instruments.
2. Sectoral bias: Indian markets tend to be heavily weighted towards a few sectors such as financial services, technology, and energy, which tend to have the largest market capitalizations.
3. Lower currency risk: Since these funds have no international exposure, they are relatively unaffected by currency fluctuations.

Advantages of domestic funds

• Familiarity: As an Indian investor, you may have better knowledge and understanding of Indian companies and sectors.
• Regulatory stability: Domestic funds operate under SEBI regulations, providing a level of transparency and security.
• Tax efficiency: Investments in domestic equity funds qualify for long-term capital gains (LTCG) tax benefits after one year, making them more tax-efficient compared to some international funds.

Limitations of domestic funds

• Concentration risk: Heavily investing in one country’s market increases vulnerability to domestic economic or political disruptions.
• Limited global exposure: Domestic funds do not provide access to industries or opportunities outside India.

Investing in abroad funds

If you’re considering investing directly in overseas funds that are managed in asset management companies of other countries, it’s important to understand the process and implications.

1. Currency risk: Fluctuations in the rupee’s value against foreign currencies can significantly impact potential returns.
2. Geopolitical risks: International markets are influenced by political events, trade wars, and diplomatic tensions, which can create volatility.
3. Regulatory risks: Different countries have varying tax laws, trade policies, and regulatory frameworks, which can affect the performance of your investments.

Risks vs. diversification:

Diversification is the cornerstone of risk management, especially when investing in international or global funds. By diversifying your portfolio, you can reduce the impact of poor performance in any one market or sector. Here’s how you can diversify effectively:

• Mix fund types: Consider combining domestic, global, and international funds in your portfolio to balance potential risk and reward.
• Choose multiple regions: Avoid over-concentration in a single region.
• Invest across sectors: Ensure your portfolio includes a mix of high growth potential sectors (e.g., technology) and relatively stable ones (e.g., utilities).

The tech advantage

Technology has made it easier than ever to manage your investments in domestic, global, and international funds. With online trading platforms and mobile apps, you can monitor your portfolio, research new opportunities, and execute trades from anywhere in the world.

1. Real-time updates: Stay informed about market movements and fund performance.
2. Ease of comparison: Compare fund performance, expense ratios, and other metrics before investing.
3. Convenience: Trade and monitor funds at your convenience without visiting physical offices.

Also Read: Diversify your portfolio with international mutual funds

Conclusion

As an investor, understanding the distinctions between domestic, global, and international funds can help you tailor your portfolio to your unique financial goals and risk tolerance. Each fund type has its unique advantages and risks, so it’s recommended to diversify wisely and stay informed.