A falling rupee and bear market at home are actually spelling good news for some Indian investors.
With a majority of global markets witnessing a bull run, most foreign equity-focussed mutual funds are offering good returns to investors (see graphic). The rupee's steady fall against most foreign currencies are further adding to their returns as the value is enhanced when converted back to rupees.
Many of these foreign-focussed MFs have offered 25-30% returns to investors in the last one year and according to wealth managers, the positive trend is likely to continue at least for the next two years.
"We believe there is a strong positive trend," said Rakesh Rawal, head, private wealth management, Anand Rathi Financial Services. "They should do well for next two years. Given historical reasons, there is scope for improvement in equity pricing."
Besides the performance of the underlying markets, exchange rates play a major role in foreign fund investments. "As for the rupee, the bias is more towards its fall, which is a positive for international fund investors," said Rawal.
Analysts, however, advise investors against allocating their entire investment portfolio to international mutual funds since it can expose them to currency fluctuations. Moreover, international funds are subject to capital gains tax that can wipe away a portion of your gains.
Globally, waning interest in gold as an asset class has resulted in an increased flow of funds towards equities this year.
US-focussed MFs gained as the benchmark Dow Jones index and the Nasdaq composite index have risen 26% in a year. The Nasdaq has gained 17% in the year so far.
“The dollar has been the strongest currency and Nasdaq has shown a compounded annual growth rate (CAGR) of 20%. We have offered a return of 20.5% to investors,” said Rajnish Rastogi, senior fund manager at Motilal Oswal Securities, which has a Nasdaq-focussed fund.
“Different international mutual funds have performed differently, depending on the markets in which they invested and how rupee faired against the currencies of those markets,” said Rastogi.