In India, there are different schemes like region-specific schemes, country-specific schemes, and thematic schemes. For instance, there are many mutual funds schemes that invest in international markets such as the US, Brazil, or Europe. In addition to that, there’re other types of funds that are based on the theme, generally investing in sectors such as energy, gold, consumption, and real estate.
Investors who are residents of India have to invest in these schemes in Indian rupees only. Just like any other available mutual fund, they need to select the fund they want to invest in, write a cheque, and then submit the application to the fund house. Or they can invest online as well.
Either these funds invest directly in the International market or they make the investment in other funds of the foreign market. The latter way is known as a feeder route. It is kind of a fund in other funds.
Advantages of Offshore Funds
There are many businesses or stock which are not listed in India. Examples of a few are IT giants and Cola Companies. Investors can be a part of their growth stories via international funds which also gives then an option of diversification across geographies. For example, global markets may give better returns when the performance of the Indian economy is not good.
Investors need to keep in mind apart from normal risks associated with investing in stocks, offshore funds come with currency risks. Usually happens due to other markets’ currency value fluctuation against the Indian rupee. While investment is taking place in rupee, the fund house has to take exposure of International equities in different currencies. So, Investors need to be a little more prepared for currency risk because any minor fluctuation will have a direct impact on NAV (Net Asset Value) of the fund.
Let’s take an example, if there is depreciation in the value of rupee against the dollar, investors will get more rupees for every dollar invested and the NAV of the fund could be higher. Whereas if the rupee appreciates against the dollar, investors will get fewer rupees for every dollar invested.
These days Offshore funds are the talk of the town because of the rising popularity of multiple mutual fund investors recommending offshore funds. They are of the belief that developed nations like the US will recover quickly from the disruption caused by COVID-19 as compared to other nations