Know This Before You Invest in International Mutual Funds

What is an International Equity Fund, and how does it work?

An International Equities Fund is a mutual fund that invests primarily (more than 80% of its assets) in the equity or equity-related securities of non-indian companies. These funds fall within the Sectoral/Thematic group, according to SEBI re-categorization guidelines.

There are two investing models either of which is generally adopted by these funds. One, having an Indian fund manager who makes investment decisions on foreign companies' equities. Two, they function as a Fund of Fund (FoF), which means they invest your money entirely in another overseas fund rather than equities.

The majority of AMCs' foreign equity funds in India are large-cap-focused and invest in US stocks. 

Taxation:

Your international mutual funds may be investing in equity, however under Indian law it will be treated like a debt fund and it will be taxed accordingly. 

Long term capital gains tax rate on international mutual funds is 20% (on the gains made by you) whereas on domestic equity funds taxation rate is 10%. 

Short term capital gains tax rate on international mutual funds is according to your income tax slab i.e. 30% if you are in the highest bracket whereas it is 15% on domestic equity mutual funds.

Additionally, International Equity Funds might take up to 5 days to settle, compared to 3 days for Indian Large Cap Funds. This means that getting your money back might take up to 5 business days from the time you submitted your redemption request.