Most international funds in the country invest in US and UK. The new funds, at first glance, offers Indian investors a chance to diversify and invest in emerging markets and European markets. But does a regular investor need such exotic funds?
“Different markets have different risk and return profiles and offer opportunities which may not be available for investors in our domestic market,” says Siddharth Srivastava, Head, Products – ETF, Mirae Asset Management India. He explains further that there are two reasons behind investing in foreign markets. “First, Investors want to take a broad market exposure to a single country or a group of countries representing a region or a category. Secondly, Investors are now getting increasingly aware about various emerging and disruptive technologies and other themes and their future potential. They want to invest in portfolio’s which provides access to companies catering to such domains,” says Siddharth Srivastava.
A look at the international fund category will tell you that the basket has various different schemes. There are funds investing in USA to Chinese markets. Or they might be investing in commodities or tech or gold. Investors need to be cautious of the kind of schemes they are picking. Mutual fund managers say that the new age technology and the changing global scenario has led to the launch of different types of new global funds.
“Domains like FinTech, E commerce, Cloud, AI, Electric and Autonomous Vehicles, IoT, etc are gaining traction. While we have seen run-ups in several companies involved in above themes, still from a long-term point of view, they may provide significant potential for growth,” says Siddharth Srivastava.
Mutual fund planners and advisors say that the trends in global markets lead to the launch of new schemes. Retail investors need to add these funds to their portfolio only if their investment strategy aligns with these themes.
“Most of the international funds that are available at present for investors are US-based funds, hence the new funds do allow diversifying across different geographies and at the same time invest in companies of different sectors as well,” says Harshad Chetanwala, Founder, MyWealthGrowth, a wealth management firm, based in Mumbai. However, he says retail investors can consider having allocation up to 10% depending on their appetite and current portfolio.
“Within the international portfolio, investors can split between US and Non-US based funds. However, the first objective of investors should be to build a strong India based portfolio and then diversify in international funds. Invest in specific international funds only when you understand that market and its functioning or take help from a planner.” says Harshad Chetanwala.
The opportunities in the global market come with its own set of risks and potential rewards. While the correlation may reduce the risk of the overall portfolio, on the standalone basis, the product may be risky and may only suit investors with a high risk appetite. The investor gets additionally exposed to the regulatory, geo-political, currency risk among others. Investors must always remember this before investing.
