Thanks to talks of Indian markets being overvalued, investors are pouring money into overseas focused mutual fund schemes as the once niche product for well-informed high networth investors is being offered to retail investors with risk appetite as part of their portfolio diversification.

Inflow into global Fund of Funds increased multi-fold to ₹1.86-lakh crore last year against ₹80,862 crore in 2020. In fact, the increase is significantly high compared to inflow of ₹8,424 crore in 2019 and ₹2,661 crore registered in 2018.

Interestingly, investment in the US-focused funds garnered the maximum investment of ₹89,642 crore against ₹45,053 crore recorded in 2020 while China and other emerging markets followed with mop-up of ₹15,280 crore (₹4,946 crore) and ₹3,005 crore (₹1,466 crore).

Except for Brazil, Europe, Asian countries and Japan none of the countries have registered an outflow in last four years.

Chintan Haria, Head Product and Strategy, ICICI Prudential Asset Management Company said Indian market capitalisation is just 3 per cent of global markets and if an investor is not considering the global markets then they are losing out on making money from a well diversified portfolio.

Historically, he said rupee has seen depreciation against the dollar, which has added to investors returns from overseas investments.

However, he added SIP in global funds has not picked up as it is a niche product and distributors are advising lumpsum investment of 5-10 per cent of investors portfolio in overseas fund but once investors get a positive experience they are bound to start SIP in these funds.

Better informed investors

Anurag Jhanwar, Co-founder and Partner, Fintrust Advisors LLP said the world's financial markets are more closely related now than they were a decade ago and today's investors are much better informed and understand benefits of having a truly diversified portfolio.

Overseas funds provide a structured route to invest in global financial assets and helps savvy investors achieve global portfolio diversification, he said.

Apart from direct presence, the joint venture of leading foreign fund houses with Indian peers provide a ready-made platform to launch innovative funds.

ICICI Mutual Fund recently launched actively managed Strategic Metal and Energy Equity Fund of Funds that has evolved investment in commodity stocks as a theme for investment across the globe.

Being the largest importer of gold and oil, domestic investors stand to gain by investing in these companies which are major exporter to India.

Market regulator Sebi has a overall cap of $7 billion in overseas stock investment for mutual fund industry and separate cap of $1 billion for ETFs.

Though MFs restrict lumpsum investment in overseas investment once the cap is hit, they try to keep SIP live as it is a commitment by both investors and AMCs, said Siddharth Kothari, an independent MF distributor.

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