Are you ready to invest in international funds?
Globalisation is now part of the fabric and even domestic investors want a piece of the global pie. But global funds are more than just about currency hedging. There are other factors as well. Lisa Pallavi Barbora reports.business Updated: Oct 26, 2013 02:41 IST
Globalisation is now part of the fabric and even domestic investors want a piece of the global pie.
If you look at the section in the Securities and Exchange Board of India's website which shows pending offer documents from asset managers, you will find at least six draft offer documents for global funds filed in the last three-four months.
A selection of the top 10 international funds in terms of performance has shown returns ranging from 26% to 50% in the last one year.
In the Morningstar Investment Conference 2013 held earlier this week in Mumbai, a panel of experts thrashed out the modalities of global investing and its implications.
It's not just about returns
A simple way to look at investing in global funds is to consider it as a currency hedge. This works particularly well for a currency like the rupee which is in danger of depreciating further against the dollar despite the recent pull back. However, the panel warned that investing in overseas assets should not only be about returns and currency exposure.
Investing in global funds is more about seeking diversification; adding to your existing portfolio in a manner which complements existing assets. "Diversification has to be about risk and not just return," said Harshendu Bindal, president, Franklin Templeton Investments India.
"In the long term, diversifying assets across geography makes sense and the trend will definitely pick up over the years," said Vikram Kuriyan, director, Centre for Investments, faculty at the Indian School of Business.
Emphasising the need to look at global investing beyond the purpose of hedging, Chris Galloway, MD, Morningstar Investment Management, Asia-Pacific, said, "It is a mistake to invest globally on the basis of currency exposure. While investors need to start investing at home, anything they add to a portfolio in terms of global assets have to be complimentary either on the risk front or on returns."
Access to products is still limited
For the average Indian investor, the access to global investing is more or less restricted to the mutual fund platform. The mutual fund platform largely offers equity exposure through feeder funds. And, under the feeder fund umbrella too, there are restrictions.
Ajay Bagga, head, Deutsche Bank India, said: "While there are many products we can potentially offer, most overseas products use derivatives and synthetic which aren't allowed according to domestic regulations."
Mint Money take
According to Kuriyan, "The logic of investing in global markets is perpetual and for long-term investors, the currency risk evens out."
But one has to be selective and be cognizant of the currency risk. This means if you are investing in say global fixed-income assets, the currency risk matters because fixed income is a defensive sort of investment.
But when you consider equity, it is a bit more complicated and basics are the same as any equity market; pick strong companies and remain invested for long periods of time.