Do you really need international funds in your portfolio?

Answering yes to the above question means that now is a good time to review your international exposure and rebalance your portfolio. If you find that you do need international funds in your portfolio and you still have some money left to invest, then consider adding an international fund to your portfolio. You should be aware of some risks, though.

International funds are complex

International funds are complex in several ways.

First, they often have more than one series of shares and different types of units are available. So, before investing, you need to ensure that you understand how the units are listed, traded, and are tax-efficient.

In addition, while the underlying portfolios are generally similar, the funds can vary widely in their credit ratings, liquidity, liquidity requirement, etc. You have to consider a lot of different factors before investing in an international fund.

What makes international funds volatile?

International funds are more volatile

In general, international funds are more volatile than domestic funds. So, make sure that you allocate funds that have low volatility.

International funds should make up 5 percent of your total investment amount. You're bound to get a few surprises from your international funds as they involve investments in different currencies and regions, which may not be favorable to you at times. Also, you may have to consider the currency volatility, as it leads to the re-balancing of the portfolio. In other words, when currencies move, it could alter the portfolio allocation to a point where you might to re-balance your international funds portfolio. 

Is it necessary for me to invest in an international fund?

Yes, you should. However, do it strategically, and not solely to achieve any returns. The idea is to go for a fund that has a good fund manager and a well-structured strategy. You need to look for funds that have a healthy track record, and have been around for a long time. You need to go for funds that invest in stocks and bonds and not be a pure play on international debt markets. They are harder to get into, and don't require much monitoring. But, it is a way to get exposure to international markets and have a diversified portfolio of stocks and bonds, which can be accessed easily over the long-term. Also, a mix of countries helps in diversifying the risks.

So, if you are considering adding international funds to your portfolio, be prepared for some risks. They can be time-consuming, but the right global allocation can help your portfolio to grow while protecting your wealth.