Hedged international mutual funds try to protect investors from currency changes, while unhedged international mutual funds do not offer this protection. Hedged funds aim to reduce the impact of foreign exchange risk. Unhedged funds carry more currency risk but may benefit if the foreign currency strengthens.

What Are Hedged International Mutual Funds?

Hedged international mutual funds protect investors from currency exchange rate movements. If you invest in a foreign market and the local currency weakens, a hedged fund will reduce or remove that loss. These funds use tools like currency forwards to lock exchange rates. This makes returns more stable for Indian investors.

What Are Unhedged International Mutual Funds?

Unhedged international mutual funds do not protect you from currency changes. This means your returns are affected by both the foreign market performance and exchange rate movements. If the foreign currency gets stronger against the Indian Rupee, your returns may increase. But if it weakens, your returns may go down.

Which Fund Type Offers Stable Returns?

Hedged funds offer more stable returns because they cancel out currency risk. Investors get returns based mainly on how the international stocks perform. This is useful when you want international exposure but do not want to worry about currency ups and downs affecting your profits.

Which Fund Benefits More from Currency Gains?

Unhedged funds can benefit more if the foreign currency becomes stronger compared to the Rupee. For example, if you invest in a US-based unhedged fund and the US Dollar rises, your returns will be higher. But this also means higher risk if the foreign currency weakens.

Which One Should You Choose?

If you want safety and fewer surprises, go with hedged funds. If you're willing to take some risk for higher returns, choose unhedged funds. It depends on your risk level and how much you follow currency trends. Hedged funds are good for cautious investors, while unhedged funds are for those ready to take more risk.

How Do Currency Movements Affect Returns?

Currency movements can increase or decrease your mutual fund returns. In unhedged funds, if the foreign currency gets stronger, your return goes up. But if it gets weaker, your return falls. Hedged funds avoid this risk by using strategies to cancel out the currency impact.