Diversify your portfolio: The power of emerging market funds for Indian investors

International funds rebounded, catching investors' attention. Indian investors are shifting their focus from US markets to explore Europe, China, and Japan for overseas funds opportunities.

market funds

Emerging market mutual funds, often categorised as overseas funds or international funds, have been gaining traction in personal finance. These funds primarily invest in the equities and bonds of developing economies, offering a unique opportunity for diversification beyond the Indian and US markets. In this article, let's explore emerging market funds, highlighting how they work, the essential factors to consider, the risk factors involved, and the taxation for investors.

Highlights -

  • Indian investors are venturing beyond the US market into Europe, China, and Japan.
  • Long-term investors with high-risk tolerances can benefit from emerging markets.
  • Volatility and currency fluctuations are key risk factors in overseas funds.
  • Factor in taxation on capital gains from international funds.

How do emerging market mutual funds work?

Emerging market funds are a category of international funds that primarily invest in stocks, bonds, and securities of developing countries. These economies are often poised to become significant growth engines on a global scale. A well-structured emerging market fund invests across various countries, sectors, and market capitalisations, allowing investors to benefit from the growth potential of these dynamic economies.

Who should invest in emerging market funds?

While the potential for high returns in emerging markets is enticing, consider the risks involved. These are better suited for investors with a long-term horizon and a high tolerance for risk. If you can afford to stay invested for at least 8 years or more and have an appetite for volatility, then emerging market funds could be an ideal addition to your portfolio.

Also Read Best arbitrage mutual funds to invest in India

What are the factors to consider before investing?

  1. Risks and returns - Given their rapid growth potential, coupled with higher volatility in securities prices and currency exchange rates, thoroughly assess your risk appetite before making investment decisions to mitigate various risks, like inflation, liquidity, institutional, and political risks.

  2. Expense ratio - Keep an eye on the expense ratio as it directly impacts your overall returns. Opt for funds with lower expense ratios to maximise your gains.

  3. Investment plan - Diversification is crucial in investing and allocating a small portion of your portfolio to emerging market mutual funds can be a fruitful strategic move. Research the fund and its manager diligently before making any commitments or investing.

What are the top 3 emerging funds?

NAV as on 20th July, 2023

What are the tax implications?

For Indian investors, the taxation of emerging market funds, similar to debt taxation, is based on the holding period. STCG tax at 15% is applicable if the holding period is up to one year, while LTCG tax applies beyond 1 year at 10% without the indexation benefits with a threshold of Rs 1 lakh.

Moving forward

Personal finance considerations suggest that emerging market funds are a viable long-term investment option tailored for Indian investors seeking global investment opportunities.

Find the latest articles on mutual funds here.

Also Read Apply or not? Yatharth Hospital IPO: Here are 10 key factors you should consider.



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