International feeder funds invest in stocks/assets outside India through an international scheme. DSP ML World Gold Fund is an example. It invests in units of BlackRock Global Funds – World Gold Fund. Other schemes invest in successful schemes belonging to their parent groups based abroad, or funds belonging to other international asset management companies.
How to buy these?
Buying units of international feeder funds is no different from buying any mutual fund unit. The investor would buy these in rupees, and the fund would further invest these in an international fund in dollars. You can buy these online if a platform is available, or you can go via an agent or a bank.
What are the charges?
The charges for international feeder funds are no different from what domestic fund investors would pay. The overall asset management charges are capped at a maximum of 2.25 per cent.
What are the other risks?
Besides the usual risk of investing in equities, there is a foreign exchange risk as well.
Why should you buy?
These provide diversification for those already invested in the domestic market. Investors can also minimise a single country concentration risk. Those investing in gold funds can use these as a hedge when the equity markets are not performing well. Since some funds are theme- or region-specific, only those aware of the market or asset class should invest.
How are these taxed?
Treated as debt funds, these are not subject to the Securities Transaction Tax. The short-term capital gains tax (period of less than 12 months) is 30 per cent (according to the investor’s tax slab). And, the long-term capital gains tax (more than 12 months) is lower 10 per cent without indexation, or 20 per cent post-indexation.
In case of hybrid global funds that invest up to 65 per cent in the Indian domestic equity markets, the tax treatment is the same as domestic funds and investors are eligible for the tax exemption on long-term gains from these funds.