Mutual Fund watch: How to choose best fund to invest in foreign market
If the persistent talk of policy paralysis, high inflation, rating downgrades, financial scams and earnings slowdown is forcing you to defer putting money in Indian equities, it is time to consider investing abroad by buying units of global funds. However, choosing the right fund is the key.
If the persistent talk of policy paralysis, high inflation, rating downgrades, financial scams and earnings slowdown is forcing you to defer putting money in Indian equities, it is time to consider investing abroad by buying units of global funds. These funds help you invest in equity but with less exposure to country-specific risks.
Variously called global funds, overseas funds and international funds, these are mainly fund of funds which invest in mutual funds with exposure to other countries. However, a few also invest directly in global equities.
"Investing a part of wealth into global funds diversifies risk," says J Venkatesan, vice president, equity, Sundaram Mutual Fund, which runs Sundaram Global Advantage Fund.
In India, there are 33 global funds, which are commodity, country and region-specific. Over the last three years, these have given an average annual return of 11 per cent, with returns from individual funds varying from 0.5 per cent to 20 per cent.
INVESTMENT CALL
Investors looking to diversify within equity can invest in international funds.
"Sometimes Indian equity investors also suffer from risks that may be country-specific such as the recent accusations of policy paralysis in the government. Global funds may mitigate these risks to an extent," says Venkatesan of Sundaram.
These funds may not suit a person who has a conservative approach to investment and is averse to investing in equity.
Variously called global funds, overseas funds and international funds, these are mainly fund of funds which invest in mutual funds with exposure to other countries. However, a few also invest directly in global equities.
"Investing a part of wealth into global funds diversifies risk," says J Venkatesan, vice president, equity, Sundaram Mutual Fund, which runs Sundaram Global Advantage Fund.
In India, there are 33 global funds, which are commodity, country and region-specific. Over the last three years, these have given an average annual return of 11 per cent, with returns from individual funds varying from 0.5 per cent to 20 per cent.
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Global funds are still evolving in India and had Rs 5,342 crore assets under management, or AUM, in March 2012, less than 1 per cent of the mutual fund industry.
Commodity funds in the category are specifically fund of funds as there are not many listed companies in India which are a direct proxy to commodity prices. Experts say Indian appetite for such funds is still evolving. "India is a net importer of commodities. Resources are a relevant investment class globally," says Krishna Sanghvi, head of equities, Kotak Mutual Fund.
Since most global funds in India invest in another fund, does that mean the investor has to pay twice?
The answer is no. "The fee that feeder/global funds charge is within the Sebi-allowed structures," says Arvind Bansal, executive vice president and head, multi-manager investments, ING Mutual Fund. This means the fund can charge up to the prescribed limit of 2.5 per cent.
RE-LOOK AT RETURNS
Global funds available in India have given mixed returns. Out of 33 funds which are diversified or theme-based, ING Global Real Estate and Fidelity International Opportunities Fund have been top performers with over 17 per cent annual returns in the last three years.
Both invest directly in shares of foreign countries. On the flip side, Birla Sun Life Global Precious Metals Fund has given a return of only 0.5 per cent.
CURRENCY RISK
Since global funds invest abroad, the investment is done in the currency of the country where the investment is made. "There is a currency exposure that one takes while investing abroad. The returns may be impacted depending on how the rupee behaves vis-a-vis that currency," says Bansal of ING Mutual Fund.
Thus, if at redemption, the rupee has depreciated against the dollar, you will earn more, and if the rupee has appreciated, your returns will be hit.
TAX TREATMENT
"For tax purpose, global funds are treated as debt funds," says Tushar Pradhan, chief investment officer at HSBC Mutual Fund, which runs HSBC Brazil and HSBC Emerging Markets funds.
This means any capital gain from these funds will be taxed at 10 per cent without indexation and 20 per cent with indexation. Short-term capital gains from debt funds are added to your income and taxed as per your tax slab11 per cent is the average annual return given by 33 global funds in India over the last three years. Individual funds' returns vary from 0.5 per cent to 21 per cent.
Commodity funds in the category are specifically fund of funds as there are not many listed companies in India which are a direct proxy to commodity prices. Experts say Indian appetite for such funds is still evolving. "India is a net importer of commodities. Resources are a relevant investment class globally," says Krishna Sanghvi, head of equities, Kotak Mutual Fund.
Since most global funds in India invest in another fund, does that mean the investor has to pay twice?
The answer is no. "The fee that feeder/global funds charge is within the Sebi-allowed structures," says Arvind Bansal, executive vice president and head, multi-manager investments, ING Mutual Fund. This means the fund can charge up to the prescribed limit of 2.5 per cent.
RE-LOOK AT RETURNS
Global funds available in India have given mixed returns. Out of 33 funds which are diversified or theme-based, ING Global Real Estate and Fidelity International Opportunities Fund have been top performers with over 17 per cent annual returns in the last three years.
Not all global funds have performed well. Investors have to choose from the different types of funds. It has to be a diversified rather than a commodity- or sector-specific fund.
J Venkatesan
Vice President, Equity, Sundaram Mutual Fund
CURRENCY RISK
Since global funds invest abroad, the investment is done in the currency of the country where the investment is made. "There is a currency exposure that one takes while investing abroad. The returns may be impacted depending on how the rupee behaves vis-a-vis that currency," says Bansal of ING Mutual Fund.
Thus, if at redemption, the rupee has depreciated against the dollar, you will earn more, and if the rupee has appreciated, your returns will be hit.
TAX TREATMENT
"For tax purpose, global funds are treated as debt funds," says Tushar Pradhan, chief investment officer at HSBC Mutual Fund, which runs HSBC Brazil and HSBC Emerging Markets funds.
Taxation Short-term capital gains from debt funds are added to your income and taxed according to your tax slab.
INVESTMENT CALL
Investors looking to diversify within equity can invest in international funds.
"Sometimes Indian equity investors also suffer from risks that may be country-specific such as the recent accusations of policy paralysis in the government. Global funds may mitigate these risks to an extent," says Venkatesan of Sundaram.
These funds may not suit a person who has a conservative approach to investment and is averse to investing in equity.
