When people think about investing, they tend to focus on the ups and downs of the stock market. But as much as these are important aspects of investing, it's equally true that the biggest risks and opportunities lie outside the equity markets. Just look at the headlines from the last few years. Political upheaval, currency fluctuations, terrorist attacks—these events can create major headwinds for investors even when they make seemingly small moves.

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Given this reality, shouldn't investors who want to protect themselves against such risks consider putting some of their assets abroad? The short answer is yes…but only if the right vehicle is used. International mutual funds, for example, may provide exposure to international markets. Abhinav Angirish, Founder, Investonline.in, shares his knowledge on overseas investments of mutual funds:-

Higher Returns

“The Indian mutual funds have been very active in investing abroad. The main reason for such large-scale investment by the Indian financial institutions is the low-interest rates offered by the domestic banks. These funds have also found it easier to invest in the overseas markets due to the higher return on investment, which is 2-3% higher compared to what is available at home across some categories,” says Abhinav Angirish.

Portfolio Diversification

“Many individual investors fail to adequately diversify their portfolios or spread out their investments across many different types of assets. The good thing about investing in overseas funds is that the investor gets to diversify his portfolio, which means that he does not have all his eggs in one basket. Diversification reduces risk and so it makes sense for an individual to invest in foreign markets rather than sticking to just the local ones. This helps reduce his risk while still giving him access to growth opportunities that might not exist at home. The best international funds track an index that provides exposure to multiple countries around the world, so the investor gets global diversification without having to research each individual country's economy and financial situation on his own,” Angirish added.

Handsome profits

He further said, “Many emerging markets have enjoyed strong economic growth in recent years; consequently, their stock markets have been hot. There is consensus that this trend could continue. The truth is that no one can predict which country will outperform next. By investing in funds that focus on companies in developing nations, one might profit handsomely as these countries develop. International funds typically include a diverse group of holdings from various parts of the world and usually offer diversification beyond the U.S., Canada, Western Europe, Australia, and Japan.”

Global Brands

“Another reason to invest in these funds is the opportunity it gives to own global brands such as Amazon, Facebook, Google, Apple etc., in one’s portfolio. Since these companies are not listed on Indian bourses, International mutual funds provide a great opportunity for investors, who already have a well-diversified portfolio of Indian companies, to own such companies,” he added.

Be prepared for volatility

“Should an investor worry about exchange-rate risk when investing abroad? Exchange rates can vary wildly, so investors should be prepared for some volatility. However, most investors don't consider this as a primary reason to avoid foreign markets. Most international fund managers are very experienced at hedging against currency fluctuations. For example, they typically maintain a large cash position while waiting for attractive entry points before making their next investment. This reduces the impact of exchange rate moves on the value of their portfolios. Also, many actively managed emerging market mutual funds have been able to deliver strong returns by selecting companies with competitive advantages regardless of where they are based,” he advised.

“However, recently The Securities and Exchange Board of India (Sebi) advisory for mutual funds to stop further investments into foreign stocks. SEBI has specified an overall industry level limit of $7 billion for mutual funds to invest in overseas securities and funds and a separate limit of $1 billion for invest in overseas ETFs. It's important to remember that investing in international funds is not without its risks. It is always wise to consult with a financial professional before making any major changes to your investment strategy,” he concluded.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)