InvestorQ : Is diversifying through Mutual funds that invest in foreign stocks the right way to go?
Tisha Malhotra made post

Is diversifying through Mutual funds that invest in foreign stocks the right way to go?

Answer
image
Moii Chavate answered.
10 months ago
Follow
Mutual Funds have always been low-risk, steady profits investments chosen by investors to diversify within the Indian financial market. In March 2021, the assets under management of the Indian Mutual Fund industry stood at ₹31.43 trillion, a 41% jump from last year. However, as Mutual Fund's performance is directly linked with the performance of the underlying asset, it comes with risks if the market is bearish or volatile.

Now, to create a path for utmost diversification, Mutual Funds in India are investing in foreign stocks. Here foreign stocks are of fundamentally strong companies listed at their respective country’s stock exchange. The idea, executed after extensive research, is backed by the logic that equity markets of different countries are not ideally correlated. There are instances where the Indian equity market may fall without affecting the rise of a foreign equity market.

Along with better returns, the foreign stock investments ensure geographical diversification within the same asset class, along with golden opportunities to invest in sectors that are not present in India. With your portfolio having foreign stocks, diversification can largely help to limit the risk exposure and manage the volatility in the process.

As retail investors such as yourself are investing in these foreign stocks in their own countries, there is no harm in diversifying and allocating a percentage of your investments towards ideal foreign stocks. However, as it is difficult to judge a foreign stock, let alone the foreign market, the best way is to invest in a Mutual Fund that invests in foreign stocks.

When you invest in an international mutual fund, a fund manager will be able to help you invest in the right places with the help of exhaustive data, technical knowledge, and experience from years of investing in international funds. If you are looking to diversify your investments, international Mutual Funds can be the ideal way.

4 Views