30 NOVEMBER, 2021

Investment in International mutual funds is a great way to diversify your portfolio and reap benefits of global markets.

“Never invest in a business you can’t understand” – Warren Buffett

Arvind Iyer, 28, and his group of 10 friends were meeting on a Zoom call. He was on a Dell laptop, and they were discussing the latest shows they watched on Netflix and Amazon Prime. He spoke about how his delivery of Nike shoes from Walmart-Flipkart had come earlier than expected. Someone on the group said that she won an online game with her cousins in the US and was waiting for her winnings via PayPal. One person said she has to turn in early because she had a call with the heads of her agency based out of New York. A couple of guys on the call were giving suggestions to each other for the perfect Tinder meeting when they called it a night.

This is a common setting among friends and families these days. People coming together online and talking about their lives in a virtual world. And, the companies that help them get through it. Noticed the brand names in the story? All of them are familiar to Indians like Arvind. These are businesses that all of them use day in and day out, and understand very well.

On the TV show Billions, there’s a line that the protagonist Bobby Axelrod says, “Whenever you can, put a company in your mouth.” He’s talking about investing in a company that makes chocolates and biscuits but what he means is that if one is thinking about investing in a company, you should know the ins and outs of the business.

Most Indian millennials who are of Arvind’s age know these US brands inside and out, but aren’t able to invest in them because they are not listed on Indian stock markets. 

Companies like Apple, Amazon, Netflix, Zoom, Match Group (Tinder) etc. are companies that will play an increasingly important role in the lives of Indian millennials and it might be a good idea for them to invest in these companies through international mutual funds.

Apart from understanding companies, there are four other reasons to invest in international funds:

  1. Low correlation with Indian markets: Indian equity markets have a low correlation with US markets. A low correlation means, what happens in Indian markets doesn’t affect US markets very much and vice versa. So, if India is going through a tough time, your international portfolio may be relatively less affected.
  2. Exposure to tech stocks: Indian stock markets are dominated by financial companies, in fact financial services hold the highest share of ~38% (as on 31st August, 2021) in the Nifty 50 index. Conversely, US markets are heavy on technology stocks. Hence, including both in your portfolio helps you in getting the best of both worlds. Further, Tech will be an integral part of everyone’s lives (more so for millennials like Arvind), and investing internationally gives Indian investors exposure to stocks like Alphabet, Amazon, Apple, Zoom, Visa, Airbnb amongst others.
  3. Geographic diversification: With few exceptions, most Indian companies’ businesses focus only on India. Large companies abroad have multiple markets around the world. Apart from tech, companies like Starbucks, Airbnb, GE, AstraZeneca, Pfizer have operations all around the world. In case of a downturn in one region, other countries can pick up the slack.
  4. Market cap and size: As of July 2021*, the NSE (National Stock Exchange) had a market cap of $3.14 trillion. NYSE (New York Stock Exchange) tops the charts with a market cap of $25.87 trillion. Although India is one of the emerging markets of the world, it still represents a very small % of the world's equity market.

Currently the performance of some of the recommended globally diversified international funds at Kotak include:

Fund Name Min SIP Amount (₹) Launch Date 1 year 3 years 5 years

Franklin India Feeder - Franklin U.S. Opportunities Fund

500

06-Feb-2012

26.87%

30.02%

24.68%

Invesco Global Consumer Trends^

(Invesco India - Invesco Global Consumer Trends FoF)

500

09-Aug-1999*

3.70%

23.85%

21.08%

Wellington Global Innovation Fund^

(Kotak Global Innovation Fund of Fund)

100

16-Feb-2017*

12.9%

27.7%

--

Source: MFI Explorer | Data as on 30th November, 2021 | ^Underlying fund returns are calculated by converting USD to INR using RBI reference rates | *Underlying fund’s launch date

Summary:

Investing into international mutual funds may be a great option, but millennials like Arvind should be mindful that we at Kotak recommend investing up to 20% of one’s equity portfolio in international equities. Further, it is preferable to choose globally diversified funds rather than a single country focused funds. However, before investing, be sure to check your risk profile for suitability for the respective funds.

*Statista.com

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Kotak Mahindra Bank Ltd., AMFI registered Mutual Fund distributor. AMFI Registration Number (ARN) 1390.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.