Overseas Fund- Bouquet

THE BIG BIZ STORY

MF investors taste globalisation fruits

Sandeep Singh

Posted online: Sunday, September 16, 2007

Mutual funds have widened options for Indians with schemes that invest in world markets; they have also tried hard to differentiate their products
Overseas funds have been available to the Indian investor since 2004. But ever since the Reserve Bank of India (RBI) raised the limit for the Indian mutual fund (MF) industry’s international investments from $3 billion to $4 billion, and individual fund houses’ exposure limit from $150 million to $200 million, there has been a flurry of activity in this domain. A number of fund houses have launched schemes investing in foreign funds or foreign equity, while others are in the process of devising their products. While duplication of products is common in the MF industry, this time fund houses have tried to come out with products that are well differentiated from those of competitors.

The uniqueness of products is no doubt commendable, as it gives the investor more choices, but it also makes his task of investing harder. After all, he must choose from a wide buffet for a mere 10-15 per cent of equity allocation. “If all the products look the same, then the investor has no choice, whereas giving options provides the investor the choice to pick the scheme that is most appealing to him,” said SBI Mutual Fund chief investment officer Sanjay Sinha.
Fidelity’s bouquet of options: Fidelity’s World Range Fund, which is still awaiting Sebi’s nod, offers five options within one scheme. These include the Fidelity America Plan, Emerging Markets Plan, European Growth Plan, International Plan and Pacific Plan. The fund acts like a feeder fund. The investor can choose between the five plans and decide where he wants to put his money, based on his risk profile and investment pattern. For instance, an investor who wants to reduce his risk and is happy with moderate returns might want to invest in the developed economies. Another, looking for higher returns but higher risk, might opt for the Pacific plan.
Birla’s switching option: Birla Sun Life launched its International Equity Fund this week. The fund house has two new ideas to offer. One, it offers investors two options: you may either invest 100 per cent internationally, thus getting the benefit of higher diversification, or you may invest a minimum of 65 per cent in Indian equity and a maximum of 35 per cent overseas, thus getting the tax benefit on capital gains that is allowed on investment in Indian equity. The attractive feature is that you can switch between the two options any time during your investment period without being charged any entry or exit load.
Two, Birla Sun Life’s scheme will not act as a feeder fund for any international fund. Instead, it will invest directly in foreign equity. Investments will be made based on advice from Standard & Poor’s regarding which stocks to pick from the international market.
Tatas’ infrastructure fund: Tata Indo-Global Infrastructure Fund is the first thematic sectoral fund for the international market. We already have a bunch of infrastructure funds trying to capture the growth in the Indian infrastructure sector. This fund, along with capturing the growth in Indian infrastructure with at least 65 per cent investment in Indian equity, will invest up to 35 per cent in international companies benefiting from the growth in their domestic infrastructure.
So, it is suited for investors looking for high growth, and is not for those looking just for risk diversification.
Bullish on Asia: Two fund houses are offering two schemes, one of which is bullish on the Asian market, and the other specifically on China. ICICI Prudential Mutual Fund has come out with its Indo Asia Equity Fund, which will invest in Asian markets. “Asia fits in better with India. Growth in Asia is likely to be higher than in the rest of the world,” said ICICI Prudential Mutual Fund deputy managing director and CIO Nilesh Shah. “Globally, allocation will move to Asia because of its performance potential.”
Capturing the China-India growth story: ABN Amro AMC has launched the China-India Fund, which will invest predominantly in India (65-75 per cent) and China (25-35 per cent). This fund has been launched to capture the growth in the world’s two fastest growing economies — China and India.
While investing in overseas funds, investors need to answer one question: what proportion of their equity investments should be allocated to international equity? According to Delhi-based financial planner Surya Bhatia, international exposure should not exceed 10-15 per cent of your equity portfolio. “By investing this proportion in international equity, you get the benefit of diversification and international growth. You invest overseas with the purpose of diversifying country risk, and for this purpose 10-15 per cent is adequate,” he explained.
Finally, what investors must remember is that while some international exposure will do their portfolio a world of good, they must not go overboard. The bulk of their equity exposure should be to the domestic market.
After all, they have greater knowledge and familiarity with the Indian market and can, hence, monitor their domestic investments better. Most importantly, why venture abroad when your own economy is growing at above 9 per cent.

Delicious Buffet
• Investing in funds with global exposure diversifies country-specific risk
• Such investments mustn’t exceed 10-15% portfolio
• Each product offers a unique proposition
• One allows you to invest in a foreign economy you are bullish about
• Another allows you to gain from infrastructure growth in other countries


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