Global Mutual Fund | Features, Structure, Pros & Cons and Taxation Rules

What is Global Fund?

Global Mutual Funds can be described as a fund that invests in stocks from all over the world, including the investor’s home country. A global fund seeks the best investments from a global universe of securities. A global fund is a mutual fund or exchange-traded fund that invests in firms all over the world. A global fund may be concentrated on a single asset class or diversified across multiple asset classes.

A global mutual fund’s core goal is to deliver long-term growth using diversity across geographies. This strategy could help to smooth out any volatility in the Indian markets by investing in other countries. A global mutual fund has an above-average risk due to its broad diversity.

The investor of the twenty-first century is educated and aware of global market performance. Geographic boundaries no longer appear to be a barrier to finding investment possibilities and making high returns for such investors. These investors are increasingly turning to Global Funds, which allow them to diversify their portfolios and invest globally. Global Mutual Funds may be a valuable asset in your armoury, allowing you to earn greatly from global market investments. Many Mutual Fund companies provide global investing opportunities that may help you beat market volatility in your local surroundings while still coming out on top of the financial game.

Features of Global Mutual Funds

1. Helps in Diversification: Investors use these funds to diversify their investment portfolios. As global funds invest in a diverse variety of securities across different countries, the investment is diversified and does not expose investors to concentration risk.

2. Risk Analysis: When you invest in different countries, the risk is determined by each country’s market conditions and macroeconomic considerations. As a result, before investing, search for more stable markets. Currency risk should be addressed as well because changes in the value of an international currency can affect the overall performance of global funds. The returns from these funds might differ since several factors affect how well they perform.

3. Inflation Hedge: Investing in Global Mutual Funds is an excellent strategy to protect yourself against inflation.

4. Taxation: For tax purposes, all mutual funds that invest largely in foreign markets are classified as non-equity funds. As a result, global funds are taxed as follows:

1. If you sell the units within three years after buying them, the gains are added to your taxable income and taxed at the relevant tax rate.
2. If you sell the units within three years after the purchase date, the gains are taxed at 20% with indexation advantages.

Structure of Global Funds

1. Investment Depending on Theme

These funds make global investments in specific themes or growth opportunities. You can invest in broad themes or industries such as commodities, energy, gold, agriculture, and mining among others. These funds are ideal for investing during a period of expansion because they provide access to segments that may not be available for investment in the domestic market. However, make sure that your portfolio is not overburdened with such investments, as investors might be put at risk by limited exposure to a single theme.

2. Depending on the Investment Area

1. Specific Area Funds: When investing in global funds, you have the option of investing just in a certain area or country. This works well if the location/country of your choice has the potential for rapid growth but in order to catch the growth and exit at the proper moment, you must have an in-depth understanding of the place.

2. Invest Globally: These funds are more adaptable since they are not limited to a certain location and can provide investors with more diverse exposure. They are often managed by fund managers who have the essential skills in managing an investor’s portfolio as well as the ability to locate and analyse opportunities globally.

3. Depending on Investment Mode

1. Directly Invested Funds: These are funds that are managed directly by the local fund manager. Instead of depending on an overseas fund manager, your local fund manager ensures that your portfolio is well-managed.

2. Indirectly Invested Funds: These funds are classified as feeder funds because they gather money from local investors and then transfer it to the parent fund, which is managed abroad, or pure fund of funds since they invest the money of the investor in a basket of offshore funds.

3. Invest Only a Portion of Fund in Foreign Equity: These funds include both domestic and international funds. As a result, they are better alternatives for the moderate risk taker since they give minimal exposure to overseas stocks while focusing on domestic markets and enhancing the tax efficiency of your portfolio.

Pros and Cons of Investing in Global Funds

Pros of Investing in Global Funds

1. As you are investing in mutual funds from different countries, your investments are protected from market fluctuations in your own country.

2. Investing in mutual funds in the world’s fastest growing markets will bring you excellent returns.

3. Foreign currency exposure can help you earn more and fulfil the demands of the future.

Cons of Investing in Global Funds

1. Geopolitical and socioeconomic issues in the country or area where you invest will impact your investments. As a result, market risks cannot be entirely eliminated.

2. Although you will be investing in rupees with a foreign currency exposure, variations in the exchange rate for that currency might either improve or decrease your fund returns.

Taxation Rules of Global Funds

When it comes to capital gains payouts in mutual funds, investors have little option. Investors often get distributions from the fund that are an unavoidable tax event due to the turnover, redemptions, gains, and losses in security holdings during the year.

It is critical to note that all Global funds are taxed as non-equity funds. As a result, profits from global funds are taxed at the marginal rate if sold within three years of acquisition. Gains realised on a three-year sale are eligible for indexation advantages in the year of sale (20% with indexation and 10% without indexation).