Stocks

Overseas funds are attractive as an investment option, but call for caution

KS Badri Narayanan | Updated on October 16, 2020 Published on October 16, 2020

Can be considered as a diversifier for Indian stock portfolios

Mutual funds are putting more faith on the international market nowadays in trying to attract investors.

Recently, Kotak Mahindra Mutual Fund filed papers with SEBI to launch a new fund that will invest in units of overseas ETFs and Index Funds based on the Nasdaq-100 Index. Asset management companies such as BNP Paribas (Global Innovative Technology Fund) and Invesco (Global Consumer Trends Fund) are also planning to roll out global schemes.

In the last couple of years, funds such as Edelweiss US Technology Equity Fund of Fund , Motilal Oswal S&P 500 index and Axis Global Equity Alpha Fund of Fund have made successful debut.

Currently, there are almost 40 schemes based on the overseas theme. No doubt, investing in global funds opens up new investment horizons and allows access to some of the world's best companies such as Amazon, Berkshire Hathaway, Microsoft, Apple Inc, Walmart, Visa International, Johnson & Johnson, Alphabet and so on.

Though these funds carry currency risks, there are also chances of higher returns from exchange rate moves, with better portfolio quality.

Better performer too

According to MutualfundsIndia.com, Nippon India US Equity Opportunities Fund has generated an annualised return of 15.97 per cent during the last five years while ICICI Prudential US Bluechip Equity Fund produced 14.72 per cent.

Franklin Asian Equity Fund gave out an annualised return of 12.31 per cent in the five-year period and Mirae Asset Greater Consumer Fund 9.90 per cent.

These schemes produced better returns for domestic investors than Sensex or Nifty based funds.

While these may show a rosy picture, not all funds produced good returns. For Instance, HSBC Brazil Fund slumped almost 30 per cent over a one year period and sports just 5.72 per cent annualised return over five-year period. Nippon India Japan Equity Fund has given an annualised return of about 6.4 per cent over a five-year period.

Instead of directly dabbling in overseas market, mutual funds are better as they are professionally managed.

But investors should keep in mind that besides market risk, these funds carry additional layers of risk on account of exchange rates and, economic and political upheavals in their home countries.

Investors who understand these risks can prefer these schemes as a diversifier for their Indian stock portfolios.

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Published on October 16, 2020
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