The Hindu Business Line : `Mutual funds must factor in diversity of Asian markets'

Diversification across sectors will help mutual funds get superior risk-adjusted returns while investing abroad, said Mr Vijay Venkatram, Head (Sales and Marketing), Fidelity Fund Management Pvt Ltd, at the CII-organised Mutual Fund Summit on Thursday. The summit focused on the mutual fund industry's vision to invest overseas.

"Diversity of Asian markets needs to be kept in mind since Asian markets are both attractive and diverse. Thus, distribution is the key to reach growing markets," said Mr Ajay Srinivasan, Chief Executive, Fund Management, Prudential Corporation Asia.

Being a huge and growing region, it is dangerous to look at Asia as a singular market. "Think local and act regional in Asia," he added.

Mr Venkatram said that home country bias was strongly evident in every country and the reason for overseas investments was only the high rate of return. "Even in the US, just seven per cent of the market assets go abroad."

The legalities and issues regarding investing overseas were discussed in the session.

"The ceiling limit, the countries, and tax implications, all need to be taken into account while investing abroad. Also, a major factor is creating awareness in the mind of the investor about the issues involved," said Mr U.K. Sinha, Chairman and Managing Director of UTI Asset Management Company Pvt Ltd.

Making the investor understand the complexities of the product, the regulatory framework of the country where investment takes place, and money laundering, are issues that needed to be dealt with, according to Mr Venkatram.

Ms Zia Mody, Senior Partner, AZB & Partners, said: "Due diligence is extremely important before a foreign market foray. If we invest abroad in the current market scenario, and the market again goes to 11,000 levels, how will we justify the decision in hindsight?"

She emphasised the need for laws to be made simplified to the investor.

Earlier in the day, Mr A.P. Kurien, Chairman of Association of Mutual Funds in India (AMFI), said that investment should be two ways: overseas investors should be allowed to invest in Indian mutual funds as well.

Mr Farhad Forbes, Chairman of CII Western Region, said the huge untapped potential market could be exploited by mutual funds, adding that there was immense scope for proactive measures from the SEBI and the AMFI.

According to him, the increased focus on equity means that a downside in the equity markets could also impact mutual funds substantially.

The low level of investor knowledge coupled with the dependence on tax sops could also affect returns, he said.