World-Class WinnersIndian mutual funds, which have given heady returns over the span of a four-year bull run at home, are now making a tactical sojourn to markets abroad chasing new themes, diversification and softer valuations. More liberal investment norms of the government and the growing appetite of Indian investors for money-making opportunities abroad are fuelling the funds' future strategy. There are opportunities to be found on the global platform, ones that may not be located at home. India has a "positive, yet low correlation with most developed markets - lower than what those markets have with each other - and a low correlation with many emerging markets as well". This, in plain English, implies that we will probably move along the same track as another nation, but probably not in the same manner. For all the surge in Indian equities, we are just about half a per cent of the world's market capitalisation. You can chew on that after you have finished reading some trivia, all of which are eminently relevant. · No single country accounts for over 5 per cent of the global stock market. The exceptions are the US, the UK and Japan. The US makes up well over 40 per cent; the other two are heavyweights too, though their contributions are smaller. · Lots of tiny countries - compared to India, they are clearly midgets in terms of size and population - like Sweden, Korea and Spain are way ahead in this respect. · It is not that India has been a top performer every year (even during our most memorable bull run). There are markets that have given positive returns when we have faltered. But, like history, performance repeats. Raison d’etre Once you drill down from the top level of the economy into each country, you will find lots of wonderful businesses with strong stock performances. Since each country offers distinct inherent strengths and each has differing growth characteristics, international investing offers diversification, especially when valuations of Indian markets are relatively expensive. The yields of overseas securities are lower than that of India. Consider this. A top-rated 10-year corporate bond in the US may provide a yield of 7.5 per cent. A comparable bond in India may fetch a yield of, say, 10 per cent. Despite lower yields on bonds, investing abroad may generate higher returns, as the fund can hope to make money in the foreign exchange market and the sensitivity of the portfolio to interest rate risk can be reduced. The Law point The stringent restrictions, that narrowed down the universe of stocks in which mutual funds could invest abroad to just 40, has now been relaxed. Mutual funds can make investments in ADRs/GDRs issued by Indian companies, equity of overseas companies listed on recognised stock exchanges overseas, foreign debt securities in the countries with fully convertible currencies and short-term and long-term instruments with highest rating. The Government has allowed investment of $2 billion by Indian mutual funds in various instruments overseas, of which, $1 billion can be in Exchange Traded Funds (ETF). Only Indian mutual funds, which are in existence for a minimum period of 10 years, would be eligible for investing a maximum of 10 percent of their net assets in ETFs abroad, subject to a maximum of $50 million per mutual fund. Dramatis personae If you are interested in investing abroad, don't just leap in the dark. International investing can be trickier than domestic investing. Most nations don't have corporate financial reporting requirements as stringent as ours and are not as stable as we are. Still, great money is being made out there. Global equity and bond markets are extremely volatile and, therefore, they signify a very high degree of risk for the uninitiated. The best option is to find top-notch Indian mutual funds focused on international investments. The first and only fund in the Indian mutual fund industry that invests exclusively in overseas equities is Principal Global Opportunities Fund. Rather than investing directly in stocks, it is a feeder fund whereby it invests all its assets in PGIF Emerging Markets Equity Fund, one of Principal's global offerings. The fund invests in regions such as Latin America, Asia, Eastern Europe, the Middle East and Africa, with exposure to 22 countries( including South Korea, Brazil, Russia, China and Taiwan ) besides 5.1 percent allocation to India. Templeton India Equity Income Fund has 20 percent exposure to overseas markets. Franklin India International Fund gives you access to a portfolio of US government securities by investing in the Franklin US Government Fund, which is a gilt fund run by the AMC's US-based parent. Fidelity Mutual Fund has recently launched Fidelity International Opportunities Fund. It will invest nearly 35 percent of its assets in international stocks. About half a dozen fund houses (Sundaram BNP Paribas, HSBC, UTI, Prudential ICICI and HDFC) have lined up plans to launch funds with a mandate to invest abroad. Investors word-wide have been exposed to the world markets for decades. Indian Mutual Funds investing in global markets have taken off in recent months opening up the hitherto unchartered territory for the Indian investor. The overwhelming response of the Indian investors is indicative of the maturity of the Indian investment scenario. Cash in on the opportunity and work your way up with your world-class winners! |
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n Mrs. Lalitha Muthu e-mail : lalitha_ppm@yahoo.com |
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Articles by Lalitha Muthu |
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World Class Winners |