A guide to strategic investment with regional funds

Mutual funds are ranked as the best choice for investors due to their high returns that outperform the market. Additionally, with the minimization of risk with portfolio diversification, investors are increasingly opting for it. There are distinct mutual fund options that must be carefully understood before investing in the fund. A regional fund is a type of mutual fund where the fund managers focus on a specific area while investing. 

In this article, we will focus on what are regional funds, their functioning types and their features. 

What are regional funds? 

A regional fund is a type of investment where the fund managers make investments in securities from a particular region. These funds focus on a particular topographical or socioeconomic region for the investments. 

Besides the geographical barrier, the functioning of these funds is similar to mutual funds where resources from different investors are pooled together to invest in a diverse portfolio of stocks, bonds, etc. A regional mutual fund company typically has a diversified investment portfolio based in or operating from a specific geographical area. 

How does a regional fund work? 

The functioning of a regional fund is similar to a mutual fund where the resources of different investors are collected to invest across financial instruments. Certain funds specialize in one type such as stocks while other regional funds offer a mix of assets. 

These funds are managed by professional fund managers who manage the investment on behalf of all the investors and divide the profits earned in the ratio of their investment after accounting for their fees. 

Many investors choose to invest in regional funds to get diversified exposure to financial securities within a geographical area where they think there are above-average return prospects. 

It is best suited for average investors who do not have the capital to make a diversified investment portfolio or otherwise lack the expertise to make profits from a diversified portfolio on their own. 

Benefits of regional funds

Regional funds benefits include: 

Geographic diversification

When you invest in India, your returns are completely dependent on the market conditions in India. As against this, by investing in a fund outside of India, the investors can diversify their portfolio to benefit from the market conditions in a different region. This brings an opportunity to earn from the positive market conditions of different economies. 

Cost-effectiveness 

In cases when the local financial markets have already hit a high, it is a lucrative solution to invest in opportunities outside. As a result, with a careful selection of investments, the investors can build a cost-effective portfolio for themselves. 

Expert management

The regional funds provide investors an opportunity to explore the foreign financial markets, all under the guidance and management of an expert. They manage the portfolios entirely while the cost of management is also divided between the different investors of a regional fund. 

These benefits together make regional funds a viable investment opportunity for investors looking to benefit from investing in international markets while benefiting from the advantages of mutual funds. 

Types of regional funds 

Like all mutual funds, regional funds can also be classified into two types based on their management process. 

These include active and passive regional funds. The active funds are managed by a portfolio manager and seek to outperform the regional index. As against this, the passive regional fund focuses on minimizing the fees and matching the performance of the regional index. 

While usually, the regional fund managers mostly invest in publicly traded companies, the active fund managers sometimes also make a small investment in privately held companies. 

Certain regional funds fall under the category of a type of international funds, too. The international funds here refer to investment opportunities with exposure to regions outside of India or cater to investments in a single non-Indian fund. An example of this is international investment-grade bond funds that several investment managers offer. 

Conclusion 

It is important for investors to understand all the pros and cons of an investment opportunity before investing in a fund. The regional funds are best suited for individuals looking for investment opportunities outside of the local market with expert management. They offer high returns to investors but come with considerable risk. As a result, the investors must take into consideration the risk while investing in regional funds. To learn more, read StockGro blogs. 

FAQs