Instead, they could stagger their exposure through the SIP route and restrict total allocation to international equities to 10-15% of their portfolio.
The new FoF will invest in Amundi Funds – US Pioneer Fund, which will be benchmarked to the S&P 500 Index. The NFO is currently open and closes on March 15 and investors can start with a minimum of Rs 5,000. The underlying funds have a diversified portfolio of 40-70 stocks with limits to individual stocks capped at 5%.
Geographical diversification, low correlation between Indian and US markets and currency hedge are the key reasons to invest overseas. With a size of $40 trillion and accounting for 55% of world market capitalization, the US is a logical choice for diversification of portfolios.
However, the US markets have run up sharply over the last decade, with the S&P 500 generating an absolute return of 189% over the last 10 years, higher than its long term average of 102.3%. Over the last one year, international funds have returned an average of 30% as per data from Value Research and the S&P 500 trades at a PE of 34, up from 22.4 a year ago.
“The underlying scheme has a long standing track record and is well diversified with holdings across new generation technology, healthcare and consumer discretionary themes that will generate alpha in the long term,” says Abhishek Bhatt, Head Wealth Management, Arihant Capital.
However, financial planners caution investors against investing overseas just because fund houses are launching NFOs and the past returns from such funds have been good. They do not want investors to rush and buy at one go.
“Overseas equity investment carries additional currency risk which will lead to higher volatility. Opt for it only if you understand the risks well and stagger your investments using SIPs over a period of time,” says S Shankar, CFP, Credo Capital.
