Investors looking for geographical diversification in their portfolio can consider investing in international markets using mutual funds. Termed as international funds, they invest in equities of a region or country, or fixed income securities.

1. What are the various types of international funds?

Of the international funds available to investors in India, there are country-specific, re are country-specific, region-specific and thematic funds. For example, there funds that invest in the US, Brazil or regions like Europe.

Apart from this, there are theme-based funds investing in consumption, energy, real estate and so on. As a resident Indian investor, you have to invest only in Indian rupees. Like any other mutual fund, you can select the fund, write a cheque in rupees and submit the applica tion form to the respec tive fund house.

2. How do global funds invest?

Funds on offer to Indian investors invest in inter national markets either directly or have the op tion to invest in other funds in those markets. The latter way is called a feeder route and is typi cally in the form of a fund of fund.

3. What is the advantage of international funds?

There are many stocks or busi nesses which are not available in the listed space in India. For example, cola companies. You can buy these through international funds.International funds help you diversify across geographies. For example, there could be phases when the Indian economy goes through a rough patch, at such a time some international markets may do well and give higher return.

4. Are there any risks of investing in these funds?

In addition to the normal risks of investing in stocks, interna tional funds also carry currency risks. This could arise due to fluctuations in in the value of other markets' currency against the Indian rupee.While investors will invest with rupee, the fund house will have to take exposure to international stocks in different currencies. Due to this, investors have to be prepared for currency risk, due to fluctuations This could impact the net asset value (NAV) of the fund. For example, if the rupee depreciates against the dollar, you will get more rupees for every dollar invested in that region and your NAV could be higher. On the contrary , if the rupee appreciates against the dollar then you get fewer rupees for every dollar invested.

5. What's the tax treatment of international funds?

From taxation perspective, in ternational funds are treated on a par with debt mutual funds.

For a holding period of less than three years, the investor is required to pay short-term capital gains tax on the profits at hisher tax slab. When it is held for more than three years, the investor will get indexation benefit as the profit is treated as long-term capital gains. Post indexation, the gain is taxed at 20%.