Like HowStuffWorks on Facebook!

How International Stock Funds Work


Different Types of International Stock Funds
Robust development in nations such as India -- where the middle class is now larger than the entire U.S. population -- can fuel the growth of international stock funds.
Robust development in nations such as India -- where the middle class is now larger than the entire U.S. population -- can fuel the growth of international stock funds.
Robert Nickelsberg/Getty Images

There are three main types of international stock funds: diversified, specialized and global. Each type invests in slightly different markets.

Diversified international stock funds invest mainly, but not exclusively, in stocks of companies that are based in foreign countries. They may also invest in some domestic stocks, or in the stocks of companies that do not have a specific geographic location, such as Web-based companies. Diversified funds also often invest in companies that are broad-based, or based in multiple countries.

Specialized international stock funds invest in the stocks of companies located in a specific country or region. This category also includes investments in "diversified emerging-markets funds," or small stock market funds in various developing countries.

Global international stock funds can invest in stocks of both U.S. and overseas markets. They are not as concerned with where a company is located as are the other two types of international stock funds, but they are international because they don't invest exclusively in U.S. markets.

There's also a difference between "open-ended" and "close-ended" funds. This distinction applies to all kinds of mutual funds, not just international stock funds. In open-ended funds, investors may sell shares they have bought back to the fund at any time. Shares from close-ended funds, on the other hand, can only be sold back to the fund when the fund terminates. This doesn't mean that you have to be stuck with the shares, however, as you can sell them to other investors if you like.

Another important consideration in international stock funds is whether or not the fund has load. If a fund has load, it means that there are sales charges added to the purchase of shares, which can be as much as 8.5 percent of the share price. This percentage is a commission that goes to the person who sold you the shares. Many international stock funds and other mutual funds are load-free, however, making for a better deal. And others are "low-load" funds that charge a fee of no more than 3.5 percent of the selling price.

If you're interested in investing in an international stock fund, you can find many listed on Internet finance sites. And you can buy shares easily by filling out an application and mailing a check. But of course it's important to do your research first to find out which kind of fund is best for you. A financial advisor can help you find good deals, as well as a fund with the right balance of risk and reward potential for your situation.

For more information on investing and international stock funds, follow the links on the next page.