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An emerging markets fund is
a type of mutual fund that invests only in developing countries. This type of fund may be
potentially the most lucrative international investment option – but it's also
definitely the riskiest.
Investing outside the U.S. poses some significant risks including:
Exchange rate risk. This is the risk that when you change your money from a foreign
currency back into U.S. dollars, the exchange rate may have changed to your disadvantage.
Capital restrictions. Since each country has its own rules on capital flows across
international borders, the availability of investments in some countries might be
restricted.
Political risk. This is the risk that a political event in the country where you're
invested will negatively affect your investment.
Different regulatory structures. Investors in the U.S. are relatively well protected by a
vast structure of regulations governing financial transactions, financial reporting,
accounting, disclosures, etc. In other countries, the rules are likely to be different and
may not offer the same level of protection for your investment.
The unknown. Securities in the U.S. are closely tracked by many analysts. For an
investment outside the U.S., information might be difficult to come by.
You should remember that, as a rule, it is never a good idea to invest in any fund until
you read its prospectus and understand the risks involved. |
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