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Indian mutual funds offer a broad range of funds that provide diversification within Indian equities and bonds. But the current hiccups in both these markets have given rise to the question of whether diversification within one's own country is enough. While investors had no choice once upon a time, the availability of international investment options make it useful to examine this issue in detail.
Indian fund houses are increasingly recognising the usefulness of having international exposure in one's portfolio. Currently, in India, two mutual funds offer international investing opportunities.
On the equity side, we have Principal Global Opportunities Fund and on the debt side, there is Franklin India International Fund. If you look at these two funds' performances in recent times, you would be more than happy. For instance, in May 2004 when average equity fund lost 15 per cent, Principal Global Opportunities Fund gained 1.7 per cent. And the case is even stronger on the bond fund side. This year (in 2004), in five of the nine months, income funds have delivered negative returns, whereas, Franklin India International Fund has managed to give positive returns in seven out of nine months.
Recently, India's biggest fund house, UTI Mutual Fund has also filed an offer document with SEBI for the launch of an International fund called UTI-SSgA-Global Titans Index Fund. This fund would invest in securities of companies comprising the Dow Jones Global Titans 50 index. SSgA stands for State Street Global Advisors (SSgA) - the world's largest institutional asset manager. UTI has recently tied up with SSgA to act as an investment advisor to UTI AMC for overseas investments by its funds.
About Available Options
Principal Global Opportunities Fund invests in stocks of foreign companies. In its five-month stint, the fund has largely invested in basic/engineering and automobile stocks, together accounting for 36 per cent of its portfolio. And in terms of global diversification, 33 per cent of the fund's assets have been invested in US stocks, 30 per cent in Japanese stocks and 33 per cent in European company stocks as on September 30, 2004.
On the other hand, Franklin India International fund is a sub-fund, which invests in units of Franklin US Government Fund. It is a US mutual fund that manages $8.1 billion of assets under management.
This US fund invests exclusively in the mortgage-backed security that is backed by the full faith and credit of the US government.
The UTI-SSgA-Global Titans Index Fund as mentioned above will also invest in foreign company stocks but its investment universe will be limited to the stocks in the Dow Jones Global Titans 50 index. The Dow Jones Global Titans Index is a float-adjusted index containing 50 of the world's largest and best-known blue-chip companies like Microsoft, Nestle, Coca-Cola, etc. Apart from free-float market capitalisation, the index also takes into account the sales/revenue and net profit for each of the companies.