Exit rush haunts mutual funds investing abroad
NAVs of most India-based international funds fell over 50% from peak levels. AUM of a few schemes shrunk 60-70% as a result of slump. Paperwork for MF investments
By Shailesh Menon, ET Bureau |
MUMBAI: During the heydays of scorching bull run, putting some money into mutual fund schemes investing in overseas markets was seen as an effective way to diversify risk. But that has hardly turned out to be the case.
Persistent downturn in global equities has put India-based international funds on a sticky wicket. While net asset values (NAVs) of most funds in this category fell over 50% from their peak levels, assets under management (AUM) of a few schemes shrunk 60-70% as a result of the market meltdown. It���s worth noting that funds, which have the mandate to invest up to 65% of their corpus in overseas assets, fell marginally lower than funds that are only allowed 35% international exposure.
Giving some credit to the old ���risk diversifier��� theory, this means that having exposure to overseas assets would not spread risk in entirety, but only cushion the fall in portfolio values. According to Franklin Templeton Investments CIO Sukumar Rajah, portfolio diversified across countries would have done better than the one that���s solely invested in India. ���An example, for this, is our Asian Equity Fund (which invests in the Asian region, ex-Japan) has shed only 30% during the same period vis-a-vis a 49% drop in CNX 500,��� said Mr Rajah.
���Deleveraging and weak investor sentiment have impacted all countries and markets across asset classes. But then, one year is a very short time frame to discredit benefits of diversification, especially given the unique nature of events. Historical experience, for the past few decades, validates the benefits of diversifying across currencies and countries to reduce portfolio volatility,��� Mr Rajah added.
According to mutual fund experts, the hurry to launch overseas funds during the days of bull run was more of an ���AUM boosting��� game for most fund houses. ���The market was not ready to take in overseas thematic and sectoral funds at that time. There is a lack of familiarity about these schemes, forcing investors to redeem their investments,��� said the fund manager of a foreign fund house.
Persistent downturn in global equities has put India-based international funds on a sticky wicket. While net asset values (NAVs) of most funds in this category fell over 50% from their peak levels, assets under management (AUM) of a few schemes shrunk 60-70% as a result of the market meltdown. It���s worth noting that funds, which have the mandate to invest up to 65% of their corpus in overseas assets, fell marginally lower than funds that are only allowed 35% international exposure.
Giving some credit to the old ���risk diversifier��� theory, this means that having exposure to overseas assets would not spread risk in entirety, but only cushion the fall in portfolio values. According to Franklin Templeton Investments CIO Sukumar Rajah, portfolio diversified across countries would have done better than the one that���s solely invested in India. ���An example, for this, is our Asian Equity Fund (which invests in the Asian region, ex-Japan) has shed only 30% during the same period vis-a-vis a 49% drop in CNX 500,��� said Mr Rajah.
���Deleveraging and weak investor sentiment have impacted all countries and markets across asset classes. But then, one year is a very short time frame to discredit benefits of diversification, especially given the unique nature of events. Historical experience, for the past few decades, validates the benefits of diversifying across currencies and countries to reduce portfolio volatility,��� Mr Rajah added.
According to mutual fund experts, the hurry to launch overseas funds during the days of bull run was more of an ���AUM boosting��� game for most fund houses. ���The market was not ready to take in overseas thematic and sectoral funds at that time. There is a lack of familiarity about these schemes, forcing investors to redeem their investments,��� said the fund manager of a foreign fund house.
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The outlook for overseas funds depends on the investment objective of the investor. According to Tata Mutual Fund MD Ved Prakash Chaturvedi, it will be some time before the trend of investing abroad kicks off again. ���Clearly, it will take another six months to one year before these funds start showing decent returns. If investors want money before that, they will have to redeem their portfolio,��� Mr Chaturvedi added.
���But logically, these funds should do well, as the corpus is invested into quality MNC stocks. I���d recommend investors to remain invested in these funds. Funds focusing on emerging markets would do well, thanks to stronger fundamentals compared with other markets,��� Mr Chaturvedi added.
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