The Diversification Dilemma: Navigating International MFs

Diversification is often seen as the holy grail of investing—a strategy that spreads risk across geographies, sectors, and asset classes. International funds have traditionally been a key tool for achieving this, offering exposure to global markets with a lower correlation to Indian equities. In recent months, U.S.-focused equity funds, in particular, have delivered impressive returns. [EasyDNNnews:PaidContentStart]

Beyond performance, these funds provide something more critical: exposure to different economic cycles and industries, such as advanced technology and artificial intelligence, which are underrepresented in India. However, the current regulatory caps have created hurdles for investors looking to expand their international investments. This isn’t just a numerical issue; it’s a strategic challenge. 

Diversification into global themes has been limited, leaving portfolios more vulnerable to local market volatility. In this constrained environment, systematic investment plans (SIPs) in existing international mutual funds remain a prudent choice. For those seeking alternatives, Exchange Traded Funds (ETFs) tracking global indices offer another route. 

However, these come with caveats—liquidity concerns and tracking errors, especially under current regulations, can pose significant risks. Despite these challenges, a few ETFs with reasonable liquidity can still help investors maintain global exposure. International diversification isn’t a luxury; it’s essential for modern portfolios. While regulatory restrictions are a reality, they shouldn’t deter investors from maintaining a global perspective. 

By adopting a disciplined approach and staying well-informed, it’s still possible to harness the benefits of international markets. The road ahead demands a mix of strategy and patience. For those with ongoing commitments, SIPs remain a viable option. As the old adage goes, the best time to invest globally was yesterday; the second-best time is today—if done wisely.

Shashikant Singh
Executive Editor

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