scorecardresearchOverseas funds: Why should you explore global securities besides diversification

Overseas funds: Why should you explore global securities besides diversification

Updated: 14 Sep 2022, 12:15 PM IST

Comparing international funds investments with their Indian counterparts reveals better returns in the latter. The current geopolitical situation coupled with the depreciated value of the Indian rupee has forced many to rejig their mutual fund portfolios.

International fund investments are good for diversification, but are they worth your consideration in the current scenario?

International fund investments are good for diversification, but are they worth your consideration in the current scenario?

How many times have we wished to invest in stocks and shares of foreign companies? Parking money in international funds allows you exposure to global marketplaces for buying and trading securities. The idea behind putting money in international funds is to put money in global funds in overseas corporations, thus, allowing diversification of portfolios by excluding domestic shares and papers from investments. Including international funds in their mutual fund portfolios has helped many investors to look beyond investments in the domestic markets.

Following is the list of the top global mutual funds in India based on returns to date

Name of the FundCAGR (in %)
ICICI Prudential US Bluechip Equity Fund15.3
Franklin India Feeder Franklin US Opportunities Fund15
Nippon India US Equity Opportunities Fund11.7
Edelweiss Greater China Equity Off-shore Fund11.1
PGIM India Global Equity Opportunities Fund7.90

While the need to diversify funds to avail the best of both domestic and global markets is understood, the question is if these funds are worth your investment. Let us look at the top-performing mutual funds in India based on their annualised returns since inception.

Name of the FundType of fundCAGR (in %)
Axis Bluechip FundLarge-cap fund15.08
Kotak Bluechip FundLarge-cap fund14.80
Quant Mid Cap FundMid-cap fund17.46
PGIM India Midcap Opportunities FundMid-cap fund20.54
Kotak Small Cap FundSmall-cap fund21.01
Axis Small Cap FundSmall-cap fund25.22
Quant Tax PlanELSS fund 21.97
Bank of India Tax Advantage FundELSS fund 17.78

A comparison of returns from funds in the Indian stock markets and the global markets reveals the latter in poor light. Personal finance experts attribute myriad reasons towards the same. 

Muthukrishnan, Chennai-based Certified Financial Planner says, “In rupee term, yes. In dollar terms, we need to check as the rupee has been depreciating against the dollar, over the long term. With a long-term growth real growth rate of around six per cent and long-term inflation of around six per cent, the nominal growth rate of the Indian economy is around 12 per cent. Good corporates do a few percentage points better than the economy. Indian mutual funds have captured these returns. That explains their performance.”

There is a growing trend among investors to divert their earnings or additional funds to international investments. The idea behind doing this is to reduce the risk of investing in the domestic market alone. While past results have indicated this strategy as a useful tactic to not concentrate their investments in a particular asset class or limit their investments to a particular geographical market, does the same hold ground in the current geopolitical situation?

International investments are gradually losing their steam. Viral Bhatt, Founder, Money Mantra explains, “In my view, global diversification is fine. There should be an attempt to diversify into foreign funds but not exceeding four to five per cent. However, looking at the current geopolitical scenario and its growing implications on our assets, it is obvious that investors must rejig their portfolios once in a while.”

Investors look to international investments as a safety net against domestic market risks. However, the recent returns of international funds posted show them at a much lower par than Indian funds. B Padmanabhan, Founder, Fortune Investment Services (P) Ltd says, “Choosing between Indian mutual funds and international funds, which one do you think would perform better in the future?

Always Indian Mutual funds.

1. 2000 to 2010 belongs to Indian MF

2. 2010 to 2020 belongs to the US

3. Now again another 10 years belong to Indian MF

FIIs started investing big time in India and every other parameter is looking great in India.

Many industries are coming back from the badly hit Covid-19. Not even a single percentage doubt about the Indian equity funds for the next 10 years compared to any international funds.”

The Indian growth story is undoubtedly contagious, but then there is also the risk of following the herd story. Doing what all other investors do can be damaging. In a stock market, being different will earn you more than paying heed to what the majority thinks or says. India is silently strengthening itself on the economic front and there is no harm in benefiting from it.

However, one must not make the mistake of underrating the power of the international market and how it can help you achieve your financial goals in the long run. Considering how the value of the Indian currency has depreciated steeply against the US dollar, the conversion of dollars earned into INR has helped many Indians to benefit from the market. 

Forex trading includes buying and selling of international currencies. 
First Published: 14 Sep 2022, 12:15 PM IST