Factors affecting returns of international funds

Mutual fund investors usually look for a smart diversification to safeguard their investments. International funds stand among one of the best opportunities to diversify across various financial markets. Our economy differs from the others and these differences benefit the investors who opt for these funds.

International funds are the funds which invest in the foreign securities. These funds not only gave investors decent returns but also have some risks associated with them. Investors need to be aware of these factors while investing in international funds.

Currency Risk

Investment in international funds have the major risks of the currency volatility. An investor buys these funds in Indian currency that is INR which is further changed to another currency, depending on the country in which it is invested. If the foreign currency falls in value against the rupee then the investor's profit will be eroded to the extent of the fall. With this, the gains can be minimised for the investors so investors should be aware of the currency risks.

Political Risk

Investments made in international funds are largely exposed to geopolitical risks. That is these funds suffer from the political disturbances in the country or region in which investments are made. That is any political changes and policy changes may affect the returns of the investment. Keeping track of the same will be a tedious job for the investors.

Taxation

Taxation is also one of the real dampeners of the international fund returns. These funds are taxed as the debt funds. If the investors hold these investments for more than 3 years then these investments are taxed at 20 per cent on account of long-term capital gain tax and if investors redeem it within 3 years then these will be taxed as per the respective income tax slab.