As you can see, stocks in the US markets have done well in the last three years. Similarly, there are stocks doing well in other countries too. Can Indians participate in the international markets to get a part of this pie? Yes, we can invest in stocks in other countries by investing in international funds. International funds are equity funds that invest in stocks of companies listed outside of India.
There are different kinds of international funds –

• Funds that invest in international stocks directly.
• Funds that invest in international indices.
• Feeder funds that invest in a certain mutual fund in the international market.
• Fund of funds that invest in units of international funds.

Let us look at the performance of some international funds –

Advantages and Disadvantages of investing in international funds
Advantages include –
Equity Diversification – The investor can gain advantages of having a diversified equity portfolio which will balance out the returns from economies not doing well and economies that are doing well.
Profitability – The investor will be able to take advantage of profitability in markets that are doing well.
Currency Hedge – The investor also benefits from diversifying into other currencies. When the rupee depreciates against the dollar, returns of investments made in the US market are enhanced.

Some of the disadvantages one should be aware of are –
Unknown markets – All of us are not aware of market conditions in foreign markets. We may not be able to track performance easily. Moreover there is a lot of information and governance in developed markets like the US, but funds investing in emerging markets may not have the same advantages.
Risk of currency movements – Movement of currency affects returns. In the last year, the rupee depreciated against the dollar, and so returns on US investments were better. If the rupee had appreciated, the returns would not have been so attractive.

Taxation 
International funds are treated as non-equity funds. So short-term capital gains are taxed at the tax slab applicable to investor. Long-term capital gains are applicable on investments held for more than 36 months. They are taxed at 20% with indexation benefits.

How Should I Choose International Funds
​There are many regional and thematic funds available. But all do not perform well. For example, the HongKong market has not done well. The financial sector has not done well globally. So Investors should choose appropriate funds. Most international funds invest in equity-based assets and so investing in international funds will not diversify your investment portfolio but only your equity portfolio.  If you are looking at portfolio diversification, you will have to choose funds investing in gold or look at real estate abroad.
It might also be better to stick to schemes that are based on broader US and European markets rather than chase funds from China or Brazil where markets are not as developed or as well-governed as those in developed markets. If your child is going to study abroad 5-10 years down the line, it might make sense to invest in US funds.
It is a good idea for seasoned investors to invest in international funds provided they choose the right funds based on their risk appetite and financial goals.