Mutual Funds sahi hai. Par hai kya? - Kotak Bank

15 SEPTEMBER, 2021

Portfolio diversification has been a prudent investment strategy. Successful investors have always used diversification to their benefit by allocating assets across asset classes, sectors and geographies. Therefore, a balance in the allocation of investment funds is a prudent approach to wealth maximisation. Having said this, choosing what areas/instruments to diversify your portfolio with, could be a challenging exercise given the growing number of options available. One asset category that has been there for quite some time but has gained significant popularity over the last couple of years are International Equity Funds, or Mutual Funds that invest in overseas Mutual Fund Schemes or Stocks.

But with India being one of the most promising economic growth stories, why would you want to invest through Mutual Funds abroad in what are often termed as mature markets? In terms of long term growth, innovative products as well as technology development, western companies have historically shown robust growth as compared to Indian companies. Consistent investment in Research and Development over decades, coupled with strong go-to-market strategy, branding, marketing and sales have made some of these overseas companies as global brands that translate into enhanced market share and higher profitability over time.

Here are a few examples. Think about the goods and services that we use in our day-to-day life. It could range from shopping online with Amazon, watching movies on Netflix using our iPhones, connecting with friends and family on Facebook/WhatsApp/Instagram (they’re all part of the same company) or even searching something on Google. All of these companies are listed on the US equity markets. Brands like Toyota, Sony, Honda, LG, and Samsung are the notable brands from Asia with international footprint. In comparison, domestic brands like Airtel, Maruti and Tata have a smaller global footprint, and therefore their dependence on the Indian economy is higher.

A comparison between the key metrics of Indian and international equity markets is an eye-opener. The S&P500 delivered a performance of close to 12%* yearly over the last decade. The recent depreciation of the rupee in dollar terms makes these returns very attractive. In the present economic situation, Indian bourses have not delivered an all-round performance, as most stocks, except the index ones continue to suffer. Meanwhile, the US stock market has often outperformed the Indian stock market.

Another critical factor in looking at international market equities is the advantage a dollar hedge provides. The rupee has depreciated significantly against the dollar in the last few years, making it more expensive to buy dollars in the future. Therefore, holding a portion of the investments in US Dollars may provide a higher degree of stability in the investment value, thereby increasing the value of the investment in rupee terms, adding to the overall returns. Today, most of the products we buy, the travel we undertake and even the education expenses we make for our children are measured in US Dollar terms, and therefore keeping a portion of investments in this currency is a smart investment strategy.

Keeping in mind the above, it is logical to dedicate a portion of your investment portfolio towards international investments in equities or Mutual Funds. Start out small, and look at building up your international investments to at least 10% of your portfolio (refer to your risk profile before taking any exposure).

Indirect investments through Mutual Funds:
The current rules have made investing in foreign markets simple and hassle-free. With the multiple benefits that international fund investments represent, smart investors should be ready to take advantage of these to the fullest. Be sure to check out the tax implications and requirements before choosing which option works best for you.

Check out Kotak’s currently Recommended Geographically Diversified International Equity Funds below:

Fund Name Launch Date 1 Year 3 Years 5 Years
Franklin India Feeder - Franklin U.S. Opportunities Fund 06-Feb-2012 26.39% 23.22% 23.76%
Invesco Global Consumer Trends^
(Invesco India - Invesco Global Consumer Trends FoF)
09-Aug-1999* 23.26% 19.33% 23.04%
Wellington Global Innovation Fund^
(Kotak Global Innovation Fund of Fund)
16-Feb-2017* 31.15% 25.35% --

Source: MFI Explorer | Data as on 31st August, 2021 | ^Underlying fund returns are calculated by converting USD to INR using RBI reference rates | *Underlying fund’s launch date

 

Click here to apply for Mutual Funds.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Kotak Mahindra Bank Limited, AMFI Registered Mutual Fund Distributor. AMFI Registration Number (ARN) 1390.

Click here to read the detailed disclaimer.

Latest Comments

Leave a Comment

200 Characters


Read Next

health-&-accident-insurance-a-waste-of-money

Health & Accident cover - A waste of money?

Do you consider it to be a waste of money! It's time you changed your perception.

a-life-insurance-policy-for-your-family

Things to look for in a life insurance policy

Having a life insurance policy without research will do you no good.

avoiding-life-insurance-one-of-the-biggest-mistakes

Avoiding Life Insurance - One of the biggest mistakes

You think, you don't need life insurance. Think again. 

Load More