It is raining money not only for equity mutual fund schemes but also for funds investing abroad. Inflows into fund-of-fund (FoF) investing abroad have more than trebled in July to ₹2,490 crore against ₹755 crore logged in January, taking the overall inflows in the last seven months to ₹9,900 crore.
In fact, Kotak Global Innovation FoF investing overseas has mopped up an investment of ₹1,612 crore last month and close to ₹1,626 crore was garnered by Axis Global Innovation FoF. Interestingly, major flows into these funds came in only during the launch of new fund offers.
The asset under management of overseas FoF has more than doubled last month to ₹20,331 crore against ₹9,847 crore in January. Besides FoF, many mutual funds also tap the international market through exchange-traded funds.
Vishal Kapoor, CEO, IDFC Asset Management Company, said adding an international fund in the portfolio brings in geographical diversification. However, he said, before selecting an international fund, an investor should check if the fund has a low correlation with Indian equities.
One more avenue
The launch of a platform by NSE and BSE to trade in stocks listed abroad will provide another option for investors to global companies.
Aashish P Somaiyaa, Chief Executive Officer, White Oak Capital, said the opening up of another avenue to invest in overseas stocks is important to capture varied opportunities and to enable diversification.
However, he said the 5 per cent tax collected at source for LRS (liberalised remittance scheme) was a significant friction for direct international investment while it is not applicable on international FOFs. “Every time one needs to send ₹100 for investment through LRS, retail investors have to shell out ₹105 from their tax paid income. In a world where people consider a brokerage of 0.05 a big cost, this 5 per cent tax is not small,” he added.
Franklin Templeton Dynamic Asset Allocation FoF with an AUM of ₹1,097 crore has delivered a return of 45 per cent in last year while ICICI Prudential Asset Allocator Fund has given 25 per cent return.
Motilal Oswal Nasdaq 100 FoF with AUM of ₹3,337 crore has returned 34 per cent even as most of the funds investing in gold had delivered negative returns for investors.
Kalpesh Damani, a mutual fund distributor and advisor, said while investors can make a good profit by investing in multiple markets through global funds, they should clearly understand the risk involved and it is definitely not for first-time investors.
The actual risk might vary depending on international conditions including political developments besides natural calamities such as earthquakes, tsunamis, riots and war-like situations, he cautioned.
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