Thanks to talk of overvalued Indian markets, investors are pouring money into overseas-focused mutual funds as the niche product once aimed at well-informed, well-heeled investors is offered to retail investors with an appetite for risk as part of the diversification of their portfolio.
Inflows into global fund-of-funds increased several fold to ₹1.86 crore last year from ₹80,862 crore in 2020. In fact, the increase is considerably high from the inflow of ₹8,424 ₹ crore in 2019 and ₹2,661 crore recorded in 2018.
Interestingly, investment in US-focused funds garnered the peak investment of ₹89,642 crore from ₹45,053 crore recorded in 2020, while China and other emerging markets followed with catch-up of ₹15,280 crore (₹4,946 crore) and ₹3,005 crore (₹1,466 crore).
Except for Brazil, Europe, Asian countries and Japan, none of the countries had any releases in the past four years.
Chintan Haria, Head of Products and Strategy, ICICI Prudential Asset Management Company, said India’s market capitalization is only 3% of global markets and if an investor does not consider global markets, he loses money. with a well-diversified portfolio.
Historically, he said the rupiah has seen depreciation against the dollar, which has added to investors’ returns on overseas investments.
However, he added that SIP in global funds has not picked up as it is a niche product and distributors advise lump sum investment of 5-10% of investors portfolio in foreign funds, but once investors have a positive experience, they will be compelled to start SIP in these funds.
Better informed investors
Anurag Jhanwar, co-founder and partner of Fintrust Advisors LLP, said global financial markets are more intertwined now than they were a decade ago and investors today are much better informed. and understand the benefits of having a truly diversified portfolio.
Foreign funds provide a structured route to investing in global financial assets and help sophisticated investors diversify their global portfolio, he said.
Apart from direct presence, the joint venture of major foreign fund companies with Indian peers provides a ready-made platform to launch innovative funds.
ICICI Mutual Fund recently launched an actively managed strategic metals and energy equity fund of funds that has made commodity equity investing an investment theme around the world.
Being the largest importer of gold and oil, domestic investors have an interest in investing in these companies which are major exporters to India.
Market regulator Sebi has an overall cap of $7 billion in offshore equity investment for the mutual fund industry and a separate cap of $1 billion for ETFs.
Although MFs restrict lump sum investments in overseas investments once the cap is reached, they try to keep the SIP alive as it is a commitment of both investors and AMCs, Siddharth said Kothari, an independent MF distributor.
January 29, 2022