International funds may be good for your portfolio, but not a must
They say that these funds help in geographical diversification of the portfolio. However, investors are not showing much enthusiasm.
They say that these funds help in geographical diversification of the portfolio. However, investors are not showing much enthusiasm. Rather, they seem content with what they can make from the buoyant domestic stock market.
“Sure, there is a lot of noise around the Alibaba IPO, but it didn’t have any significant impact on queries regarding international funds. We have got only a few calls from some HNI clients,” informs Surajit Misra, executive vice-president & national head — mutual funds, Bajaj Capital.
Abhinav Gulechha, founder, Soham Financial Planners, also says that investors rarely enquire about global funds. “These funds are not even discussed regularly in financial advisor forum,” he adds. As on August, 44 global funds together manage assets worth around Rs 4,738 crore.
According to a financial advisor wh tried to draw his clients' attention to global funds, the whole exercise was to drive home the point of portfolio diversification across countries. “It was not an attempt to make everyone to invest in global funds. We just wanted to communicate the fact that just as you spread your investment across various assets, you can also diversify your portfolio by investing in companies abroad,“ says the consultant.
“Since Indian market has given phenomenal returns in the past year, not many investors want to look beyond Indian stock market now. But, it is always a good idea to take a small exposure in global equities as part of the diversification process.“ Many advisors say that investors also feel that global funds cannot match the returns offered by Indian stock market.
Even well informed investors believe that developed markets are unlikely to see the kind of buoyancy one witnesses periodically in emerging markets like India. However, experts feel that this is only partly true.They say there have been occasions, like last year when the rupee has depreciated drastically, when global funds offered better returns than the domestic counterparts.
Advisors also say that some investors find these a bit complex to follow due to the currency angle, as returns depend on the performance of the domestic currency against a foreign currency. Taxation on these funds never helped their case either. They are taxed like debt funds. One has to hold them at least three years to qualify for long-term capital gains tax.
Though most financial planners would recommend investing 5-10% of the total portfolio in global funds as a part of diversification, many of them say they seldom insist on it, especially when it comes to younger clients and those with a small corpus. Gulechha says he doesn’t recommend international funds to his young clients who are just starting their financial life. “The first thing is to get them to organise their finances. Also, we don’t think it is required at that stage, as you have great options even in the domestic market,” he adds.
Some advisors believe that investors with small corpus don’t need such diversification. “You should have a sizeable corpus to make it meaningful. Otherwise, it would be just an exercise,” says an advisor, who doesn’t want to be named.
Many financial advisors share the view. They believe that if you already have invested in mutual funds as part of your diversification, you shouldn’t sweat much about geographical diversification. However, some purists insist that it’s meaningful irrespective of the corpus.
However, most advisors are unanimous that such diversification is a must when it comes to investors with huge corpus. Mutual fund distributors also say that most queries on global funds always come from high net worth individuals (HNIs) or ultra HNIs.