Out of 69 schemes that have been in the market, 44 schemes have offered double-digit returns in the last three months. The top performers in this category were technology ETFs. Mirae Asset Hang Seng TECH ETF has offered the highest return of 39.97% in the three-month duration, followed by Mirae Asset Hang Seng TECH ETF FoF which offered 39.25% returns.
Now, the big question: should you bet on these schemes?
First, let us find out what is driving these schemes. “We do think that this recent outperformance has come on the back of the fact that they went through a very sharp correction. They start off in the first half of 2022 and valuations in many international markets have now come down to their long-term averages or in some cases are even below their long-term averages and therefore investors who are looking at investing longer term because the underlying is equity as an asset class should ensure that they continue to invest internationally because valuations are reasonable as compared to the valuations in India are still at a premium,” says Vishal Dhawan, CEO, Plan Ahead Wealth Advisors, a wealth management firm in Mumbai.
“This recent outperformance has come on the back of the fact that they went through a very sharp correction. They start off in the first half of 2022 and valuations in many international markets have now come down to their long-term averages or in some cases are even below their long-term averages and therefore investors who are looking at investing longer term because the underlying is equity as an asset class should ensure that they continue to invest internationally because valuations are reasonable as compared to the valuations in India are still at a premium,” says Anil Ghelani, Head – Products & Passive Investments, DSP Mutual Fund. (Read the full interview: “International funds offer attractive diversification opportunities,” says Anil Ghelani of DSP Mutual Fund)
That shows that these schemes may offer a great opportunity to invest in them. However, investors should remember that these schemes are mainly used to diversify the portfolio. However, investors should remember that they should choose international schemes very Carefully. This is because there are a variety of options: ranging from global commodities to global indices to technology. “There are differentiated offerings in the international investing space. They include gold mining equities, natural resource sector like metals & mining, diversified equity and country or region specific exposure, innovation & technology, agriculture, sustainable energy and asset allocation funds,” says Ghelani.
Then there is the question of international schemes stopping accepting money if they once again breach the overall limit of $7 billion allowed for mutual funds to invest in overseas stocks. Several mutual fund houses stopped accepting money from investors after Sebi informed them that the overall limit was breached. However, most of them started accepting money after a brief period as the redemptions and big fall in global markets provided an opportunity.“It could happen but again a part of this is also the function of how the inflows and outflows from international mutual funds are. So I would say that the way investors should do this is that they should work on their strategy independent of the limit at this particular point because the flow of money in and out of an international fund is not really controllable by an individual investor in any case and therefore they should not alter their strategy because of this possible limit cap coming in but continue with their investments assuming that the cap will not come in for now because otherwise trying to run their portfolio strategy keeping in mind that the cap will come in may not allow them to make the right decision,” says Dhawan.
So if you are interested in investing in international funds, what are the things you should keep in mind? “We think that ideally when you are building international portfolios you can either build it through actively managed funds or passively managed funds. Our preference for international investing is through passive funds and therefore investors should look at index funds which invest either in the US or in broader developed markets when they are trying to build their international exposure,” says Dhawan.
Dhawan says he still advises investors to go for international schemes, provided they remember the following points. One, invest through a gradual investing process like an SIP or STP. Two, built initially through index products before trying to buy anything which is more thematic or more specific to smaller geographies. “They should build it out through large geographies and through index routes and through SIPs and STPs,” says Dhawan.
Source: Value Research, Return as on January 17 2023
