Ask any Indian investor about his expectations from the market and it would always be higher returns year on year. However, the recurring volatility has led many to look for alternate markets including the foreign markets that lend scope for diversification too. With domestic equity markets now available at higher rates, Indian investors have jumped domestic boundaries to invest in stocks of foreign companies through international mutual fund schemes, the latest being DSP Global Innovation Fund of Funds.
Rolled out by DSP Mutual Fund on January 24, 2022, this FoF scheme will invest in overseas active and passive mutual funds along with exchange-traded funds (ETFs). Roughly 10-15 per cent of the investments will be parked for long periods in innovation and technology-driven companies. However, this is not the first fund that has its premise in international stock and fund markets. To date, there have been 63 international fund launches by domestic mutual fund houses, one-third of which were launched in 2021 alone. These fund houses offer a variety of funds that invest primarily in America, Europe, Brazil, China, Asia and other emerging markets. Out of 63 international funds Indian investors can put their money in, 20 funds invest in the US markets. Among these, only two or three invest in technology companies listed in American stocks and funds. Others focus on other aspects including agriculture, mining and the real estate sectors.
Mutual funds investing in US stocks
With many mutual fund houses allowing scope for exposure to US stocks, many Indian investors are now relying on professional services to diversify their investments in global stocks. In lieu of nominal fees, investors in India benefit from parking their money in US equity markets touted as among the most developed markets in the world. Most of these stocks that are otherwise not available in India can be invested in through these fund houses.
Retail folios are at an all-time high
Most retail investors choose their funds based on past years’ returns despite several warnings by the Association of Mutual funds of India (AMFI) and individual mutual fund houses that historical returns must not be extrapolated to expected returns in the future. Mutual fund houses investing in US securities have outperformed those limited to investing in the domestic market in the past two years. This explains the sudden surge by around three times in retail investor accounts over the past year. Though the global market holds many opportunities to invest in international funds, most investors prefer US stocks owing to superior returns from US indices and the benefit of having a weak rupee vis-à-vis the dollar.
|Fund Name||Five Years’ Returns (In%)|
|Motilal Oswal NASDAQ 100 ETF||25.27|
|Franklin Ind Feeder Franklin US Opportunities Fund||20.34|
|Nippon India US Equity Opportunities Fund||19.01|
|PGIM India Global Equity Opportunities Fund||18.70|
|ICICI Pru US Bluechip Equity Fund||18.18|
Source: Value Research Website