Mutual Funds

Your Fund Portfolio

Anand Kalyanaraman | Updated on May 17, 2020

Currently, the rupee is falling, and is near all-time lows. Please suggest some US-based funds.

Ashish Pathrabe

It’s true that the Indian rupee (INR), like many other currencies, has weakened quite a bit against the US dollar (USD) since the beginning of this calendar year. From about 71 per USD in early January 2020, the INR now trades at about 75.5 per USD. This is mainly due to the Covid-19 impact that has driven many investors towards perceived safe-haven assets such as the USD.

While the rupee’s fall has been rather sharp this year, it has also been weakening over the years against major global currencies such as the US dollar and the euro due to a variety of factors. This trend could continue in the coming years, though it is very difficult to predict currency movements due to multiple, unpredictable factors at play.

The weakness of the rupee against foreign currencies adds to the rupee returns made on investments denominated in such foreign currencies. For instance, say, you bought an asset worth $1 in January 2020 by spending ₹71. Now, assuming that the asset value remains the same $1, if you sell it now and convert the proceeds back to rupees, you get ₹75.5 — a gain of ₹4.5.

The rupee’s long-term weakness against many global currencies including the USD is one of the reasons in favour of investing in India-based global funds, provided the funds don’t hedge their currency exposures.

There are other good reasons, too.

Diversification, a core principle of portfolio management, helps reduce the overall risk for an investor. This can be achieved by having investments not just across asset classes in the local market, but also by having some exposure to global markets.

Global markets do not often move lock-step. So, geographical diversification can help shield the overall portfolio from volatility in a single, local market, say India.

This may not always be the case though. Sometimes, global crises such as the coronavirus pandemic can see most global markets fall in tandem, as it did in March.

Still, the extent of the fall and recovery could vary across markets.

Next, some niche opportunities such as cutting-edge technology stocks (think Google’s parent Alphabet (Google’s parent), Amazon, Apple, Facebook, Microsoft) are available only in global markets and not in India. Exposure to such stocks can be had with funds that invest in these.

Also, the stocks of some foreign companies, with good growth prospects, could be trading cheaper than Indian ones.

Investing in foreign stocks through a local mutual fund is a convenient option. It saves you the hassle of opening an overseas broking account, researching foreign stocks and keeping track of their performance.

The fund manager will do the investing and churning on your behalf — for a fee, of course.

Among the good India-based funds that invest in US stocks and have a long track record are ICICI Prudential US Bluechip Equity Fund and Franklin India Feeder - Franklin US Opportunities Fund. Despite the market turmoil over the past few months, these funds have delivered positive annualised returns in the teens or more over the past year and over longer periods — compared with the fall or single-digit returns in the Indian bellwether indices.

Motilal Oswal Nasdaq 100 FOF, with a track record of about a year and half, also sports strong returns. Parag Parikh Long Term Equity that generally invests a portion (about a third) of its portfolio in US stocks also has a good track record, though the chunk of the exposure here (at least 65 per cent of the corpus) is in domestic stocks. The recently launched Motilal Oswal S&P 500 Index Fund might be a good choice if you seek to passively invest in the S&P 500 index.

A word of caution here. The US stock market has had a strong run over the past few years and also staged a good recovery since its lows in March. Given the ongoing uncertainties and challenges to economic growth due to Covid-19, and the possibility of a flare-up in tensions between the US and China, weakness in the US stock market cannot be ruled out. So, you may be better off investing regularly through the systematic investment plan (SIP) route rather than in lump sums. This will help you take advantage of market falls, if any, to reduce your overall cost of acquisition.

Be ready for pain in the short and medium term. Have a long-term horizon of at least five years. Invest a part of your money (say, 10-15 per cent of your portfolio); don’t go overboard. You should be in good company — the Oracle of Omaha recently reaffirmed his faith in the US story.

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Published on May 17, 2020

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