ET In The Classroom: Overseas funds help diversify equity portfolios

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WHY SHOULD INDIAN INVESTORS ADD INTERNATIONAL FUNDS? India is among the top 5 countries by market capitalisation, but its share in the global market capitalisation is between 4-5%. Given this low share, wealth managers feel there is a need to diversify equity portfolios geographically to manage risk and participate in industries, tech and firms that are not available in the Indian stock market. There are times when the Indian economy will go through rough patches and global markets will perform well and vice versa, and in such scenarios diversification helps. Many large businesses in areas like ecommerce, electric vehicles, AI and biotechnology are based in developed markets. Thus, by investing in international funds you get an opportunity to own world-class companies.

WHAT ARE THE OPTIONS AVAILABLE TO INDIAN INVESTORS IN THE INTERNATIONAL FUND CATEGORY?

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Funds invest in international markets either directly or have the option to invest in other funds in those markets. The latter method is called a ‘feeder route’ and is in the form of a fund of funds (FoF). With Indian investors keen to invest overseas there are products available. They could be thematic passive funds, country-specific, region-specific, consumer funds and tech funds. Among some of