“Can you suggest a good international fund—or include one in my portfolio?”
I hear some version of this question regularly in my work as a SEBI-registered investment adviser. Usually, I respond with another question:
“If I hid the last three years of returns from you, would you still want to invest internationally?”
Take a moment before answering. If the answer is still yes, there may be a genuine portfolio reason for investing abroad. If the answer suddenly becomes less certain, perhaps the attraction is not diversification but recent performance. That difference matters.
About the author: Mahesh Kumar K is a SEBI-registered Investment Adviser and Principal Adviser at ClearPath Wealth. He is a member of Fee-only India, a group of fixed-fee-only SEBI RIAs.
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A good idea is not always a good portfolio decision
There is nothing wrong with international investing. An investor may want exposure outside India, access to businesses or sectors not adequately represented in India or an allocation linked to a future foreign-currency expense. All can be reasonable.
But there is a difference between “My portfolio needs an international allocation” and “This market has done very well. Which fund should I buy?”
The first starts with the plan. The second starts with the performance chart.
Imagine three funds: one has underperformed, one has done nothing exciting and the third has delivered spectacular recent returns and is being discussed everywhere. Which one are we most likely to research? Usually, the third.
That is simply human behaviour. What has recently worked becomes easier to believe in. Once we like the story, words such as “diversification” can sometimes give us a respectable reason to do what recent returns already made us want to do.
The biggest risk may not be investing abroad. It may be investing abroad for the wrong reason.
What about all the discussions on social media
Today, a few videos can introduce us to the US, Japan, Taiwan, Korea, China, global ETFs, semiconductor funds and many other ideas. Some of that content can be genuinely useful, and many finfluencers explain investment ideas well.
A video can explain why an investment is interesting. It cannot know whether your portfolio needs it.
It does not know your goals, existing investments, ability to tolerate years of underperformance or how you will react when today’s exciting market stops being exciting.
A general idea meant for thousands of viewers still has to pass through your own financial plan before becoming an investment.
Social media can tell us what is getting attention. It cannot tell us what our portfolio is missing.
What the recent return chart doesn’t show
Recent performance has a strange effect on memory. Long periods when a market went nowhere gradually disappear from the story. Consider three examples:
- Japan: The Nikkei 225 surpassed its December 1989 record only in February 2024 — more than 34 years later.
- Taiwan: The TAIEX surpassed its February 1990 peak only in July 2020 — roughly 30 years later.
- Singapore: The Straits Times Index surpassed its October 2007 price-index record only in February 2025 — more than 17 years later.
This does not mean these were bad markets to invest in or that today’s popular international markets will repeat the same experience.
The lesson is simpler:
A good country can have a disappointing market. A good market can have a disappointing decade.
Markets do not know when our financial goals are due.
International does not automatically mean diversification
There is another trap hidden inside the word “international”. Sometimes it simply becomes shorthand for US investing; at another time, the fashionable destination may be Japan, Taiwan, Korea or China.
Different countries do not necessarily mean different risks either. Taiwan and Korea, for example, both have significant exposure to the global semiconductor cycle.
Diversification is not about collecting more flags in a portfolio. It is about understanding which risks we are reducing and which new risks we are adding.
For Indian investors, international mutual funds also come with extra complications such as overseas investment limits, currency movements, different taxation, and occasional restrictions on fresh investments.
International equity is still equity. Crossing a national border does not make market risk disappear.
Three questions before you invest
I don’t think there is one answer for everybody. Before adding an international fund, I would ask just three questions:
- Would I still want it if its recent returns were hidden?
If most of the attraction disappears when the return chart disappears, that tells us something. - What job will it do in my financial plan?
What risk does it reduce? What useful exposure does it add that I genuinely need? - If it underperforms Indian equity for the next 7 or 10 years, will I still hold it?
Diversification is easiest to believe in while the diversifier is outperforming. The real test is whether its place in the plan still makes sense when its returns stop helping the argument.
One final thought
I am not making a case for or against international investing. I am making a case for knowing why an investment belongs in the portfolio before deciding which product to buy.
Sometimes that process will lead to an international fund. Sometimes it will lead to no new fund at all. Both can be perfectly reasonable answers.
The fund should enter the portfolio because the plan needs it. Not because the performance chart made you want it.
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