The Hindu Business Line : Fund Talk

a) There is so much of talk about mutual fund investing overseas. Will this benefit small investors? Is there any such scheme available and whether we can invest for long term?

b) Will the rule "Buy Low-Sell High" apply for starting a SIP with a mutual Fund?

V. Balaji

Indian mutual funds can now invest in equity and debt securities of other countries, subject to conditions specified by the SEBI. The cumulative investment of all funds put together is capped at $2 billion ($1 billion earlier). Individual mutual funds can invest up to 10 per cent of their assets in such securities subject to a maximum of $100 million. For overseas exchange-traded funds (ETFs), the cap for an individual fund-house is fixed at $50 million.

While this opportunity did exist earlier, the norms were too restrictive. Earlier, domestic fund-houses could invest only in foreign companies that directly held a 10 per cent stake in a listed Indian company.

The relaxed norm throws open the field for fund-houses to launch a wide range of products. This means you now have the opportunity to hold a Microsoft or Google in your portfolio or hold funds that take exposure to specific markets such as the US or Brazil.

At present, only two funds, Principal Global Opportunities and Templeton India Equity Income, have a mandate to invest abroad. While the former invested in overseas stocks such as Colgate Palmolive and Atlas Copco, the latter chose to wait for the fine-print on regulation and invested only in domestic stocks. With a restricted universe of 30-40 stocks to choose from (due to the earlier restraints), Principal Global's performance lagged local diversified funds by a huge margin.

While Reliance and UTI Mutual have filed offer documents, Fidelity also appears keen to come out with a global fund. There may be more funds in the offing as the regulatory aspects become clearer.

The launch of these products would expand the investment opportunities for Indian investors seeking diversification. If you feel there are other markets that appear to be attractively valued compared to India or that the Indian market can be risky, you may wish to diversify your portfolio through funds that invest abroad. You may also want to capitalise on investment themes or stock-specific opportunities that are not available in the domestic market. Or you could choose funds that invest in overseas ETFs, if you prefer a passive exposure to overseas markets.

Before entering such funds, you may have to, however, look at the background of the fund-house and the fund manager and their experience in overseas markets. For instance, fund-houses that have tie-ups with foreign institutions may be better placed to understand, research or gather inputs on foreign markets and actively manage their fund.

Before choosing a fund to invest in, be on the "wait-and-watch" mode for some time to see the kind of products that fund-houses come up with and the investment strategy they intend to adopt.

As for your question on the "buy-low-sell-high" rule for the systematic investment plan, it would indeed be ideal if you can time every `buy' into an equity fund on the month's stock market `low'. Unfortunately, the same is simply not possible without the benefit of hindsight. An SIP simply allows you to make a monthly investment on a fixed date stipulated by the fund. The index may or may not be at the lowest level on that date. But an SIP does give you a chance to buy more units at lower rate and restrains you from going overboard when the price is high, thereby averaging the rupee cost. In that sense, SIPs do partly put to practice the rule you mentioned.

If you do invest in an established diversified fund for at least a three-to-five-year period, the chances are you may be sitting on decent gains. SIPs allow you to build wealth without the hassle of "timing the market". Instead of trying to time the market, determine your financial goal, time horizon and risk tolerance and chalk out your investment plan accordingly.

Vidya Bala

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