When several Asset Management Companies (AMCs) re-opened the window shut earlier this year by the RBI for investment in their international mutual fund schemes, there was an outpouring of demand all of a sudden. One of the reasons for this was probably the caveat added that the AMC reserved the right to shut the window again, at a short notice.
International mutual fund schemes invest their corpus in designated overseas markets with the USA being the preferred destination, at least if the Assets Under Management (AUM) slice-up is anything to go by. It affords Indian investors the opportunity to get benefit from investing in the best international companies, many of which are not listed on the Indian bourses.
Add to this, the historical trend of the USD-INR exchange rate relationship and one could expect an additional returns boost via a depreciation of the home currency over time. There are also China, Japan, Asia and Europe-centric International Funds on offer in the Indian market for those looking for additional geographical diversification.
The rush following the recent re-opening of the window to invest in overseas markets via the mutual fund route brought back memories of an Investment Seminar, where I was invited to speak some years ago. There, I was asked an interesting question by a participant during a Q&A session post the speech. The lady said she hoped to send her daughter aged 13 overseas for studies post her graduation, and asked me how feasible it was for her to try and open an account with an American stock broker and invest in what she called American blue-chips, namely Apple, Facebook and Microsoft.
Given that I had no idea what the rest of her Investment Portfolio looked like at that point in time, I had restricted myself to commenting that it was conceptually a good idea and that she might find it less cumbersome to invest via the Global or International Funds, as these investment vehicles offered by several AMCs in India are popularly referred to.
It is no secret today that it is often worthwhile for High Net Worth Resident Investors with fully loaded portfolios to seek a quasi-currency hedge to their portfolios, even while seeking capital appreciation, by investing in International Funds. With the global indices including the high profile US indices, the S&P 500 and the Nasdaq has taken a slam-dunk recently, the general feeling is that these indices and the stocks listed thereat are value-buys on offer at a kind of discount sale.
However, such Fund categories are very investor specific and it is best left to Advisors to decide whether they merit a fit into an HNI Resident Investor’s Portfolio. Also, unless one’s Advisor has a comprehensive understanding of the dynamics of both these markets and the underlying currencies and can thus sense an opportunity to gain from such an investment, it could end up becoming an overkill. Used judiciously, there is good scope to not just hedge but also gain handsomely.