MFs investing in US funds give 37% returns

MUMBAI: It’s not just IT, pharma and other export-oriented businesses which stand to reap benefits from the recent weakness of the rupee. A small bunch of mutual fund investors who had put their money in Indian funds which, in turn, invested in equity schemes in the US also stand to reap rich dividends with yearly returns of over 37%.

In contrast, during the comparable period, the best among diversified pure domestic equity schemes returned about 8.8%. Similarly, the S&P500 index gained about 18%, while the sensex rose just about 2.5% during the same period. It’s small wonder then that on the back of such strong returns and good future prospects, financial planners and fund distributors are advising their clients to have a serious look at these schemes.

An analysis of three such funds, which are available in India (christened feeder funds), shows that while FT India Feeder Franklin India Opportunities Fund has given a return of about 37.5% in the last one year (till August 22), ICICI Prudential US Bluechip Equity Fund has given a return of 36.6% and DSP Blackrock US Flexible Equity Fund has shown a growth of 33.4% in its net asset value (NAV). There is another fund, JPMorgan US Value Equity Offshore Fund, which is a new entrant in the feeder fund space and does not have a oneyear track record.

The returns in the last three- and six-month periods, when annualized, are even more impressive. In the last three months, the FT India fund gave a 67% return, the highest among its peers while in the half-year period, ICICI Prudential’s feeder fund returned nearly 61%, an analysis by Prime Capital Services, a financial planning, wealth management firm, showed.

About 16% of these returns in each of the schemes was because of the rupee’s weakness against the dollar. A majority of the returns, however , is attributed to the good run in the US economy and also fund management abilities.

Financial planners and advisers are pushing these funds for three distinct advantages. “For one, India’s share in global market capitalization is just about 2% compared to US’s 32.6%. Through US feeder funds, one can take exposure to a much larger market,” said Dhiraj Mittal, CEO, Prime Capital Services.

How do feeder funds work

Indian mutual fund houses float an MF scheme in which Indians invest. These MFs then invest the money in the respective US fund for which the collection was made in India. Now, if one had invested Rs 1 lakh in one such feeder fund about two years ago at a rupee-dollar exchange rate of 50, the value of the initial investment would have been $2,000. With the rupee now at 66.19 to a dollar, the initial investment is now worth more than Rs 1.32 lakh — an appreciation of 32% because of the rupee’s weakness. On top of that, the US market’s rise added to the gains. TNN