Global Equity Funds invest money that is pooled from clients into companies from other stock markets of the world. For example Motilal Oswal NASDAQ 100 ETF invests in companies that are included in the NASDAQ – 100 index. NASDAQ stock market is an American Stock Market and the NASDAQ – 100 index includes large cap companies such as Apple Inc., Microsoft Corporation, Google Inc., Intel Corporation, Facebook, Qualcomm Inc. to name a few.
If investors are of the opinion that US stocks are expected to deliver healthy returns due to recovery in the economy then Global Equity Funds is one of the options for them. Money can even be invested directly in stocks by opening an international trading and Demat account through an agency by local companies in India but investments through mutual funds are professionally managed and in a better position to manage risks.
Types of Risks for Global Equity Funds
Companies in which Global Equity fund invests their corpus, generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.
Market Risk also known as the Systemic Risk pertains to risk arising out of the overall performance of the stock market. Domestic and International Stock Markets are subject to un-diversifiable risk or systemic risk as any unpredictable events can destroy value for the unit holders in a short period of time.
Country Specific Risk
Global Equity Funds invest their corpus in stocks across the World and as such carry an indirect Country specific risk. Stock performance may get affected due to risk arising out of default by the Government of that country as the foundation of a strong company also lies with the financial and political stability of the specific economy.
The US economy is sure but on a steady path to recovery. The Global Equity Fund has delivered healthy returns for the unit holders as companies in the US stock markets have delivered growth in revenues accompanied with improvement in profitability.
Investors even need to compare the performance and expected returns from mutual funds that invest in domestic (Indian Companies) as the returns may be significantly higher than those delivered by the developed world stocks.