FUND FULCRUM (Contd.)

April 2013

Domestic mutual fund houses are back in the game. After losing to their foreign counterparts (having presence in India) for two years, local mutual funds did better in terms of a rise in their assets under management in 2012-13. The year gone by, which proved to be one of the toughest periods for the sector, saw local players gain 23.5% in their assets, to Rs 7.24 lakh crore. This has surpassed the AUM growth of foreign entities, which could manage a rise of 17.6% during FY13. The sector’s average growth was 22.8%.

With a higher incentive to sell schemes in smaller towns and a sizeable corpus to spend on investor awareness, fund houses are making efforts to expand their reach beyond the top 15 cities. According to the latest AMFI data, Mumbai continues to be the largest source of the mutual fund industry’s assets at 43%, followed by Delhi at 15%, Bangalore at 6%, and Chennai and Kolkata both accounting for 5% market share each. However, the market share of Mumbai dropped from 49% in September 2011 to 43% as on March 2013. Currently, the top 15 cities account for nearly 87% of the industry’s AUM. Nearly 5% of industry’s assets are concentrated in the next top 20 cities (those beyond top 15). Out of the Rs 7 lakh crore assets managed by the industry, roughly 43% or Rs 3.01 lakh crore of assets come from Mumbai. 70% of the Rs 7 lakh crore industry’s AUM consists of income and liquid fund assets. Some top AMCs are planning to set up shop in B-15 towns while others are exploring a combination of branch expansion and roping in business representatives.

Regulatory Rigmarole

Market regulator SEBI has done away with filing physical documents to KYC Registration Agencies (KRAs) by amending its KRA regulations. Mutual fund distributors can now upload the KYC details on the systems of KRAs and furnish the scanned images of the KYC documents to the KRA and retain the physical documents with them. However, mutual fund distributors will have to submit the physical KYC documents as and when demanded by KRAs. The move is likely to bring operational ease to all intermediaries. Investors can check their KYC status on the websites of KRAs. SEBI has granted registrations to five KRAs so far. The KRAs are supposed to maintain and share client data among themselves. Mutual Fund distributors are still waiting for all the KRAs to establish interconnectivity among themselves, as KYC done with one KRA is not reflected in the systems of another KRA.

Nominees of mutual fund distributors can now get commissions on ongoing SIP transactions and they need not hold ARN license. In a circular issued on March 28, 2013, AMFI has said that the nominees will also be entitled to get trail commissions on ongoing SIP installments even after the death of the ARN holder. AMFI has clarified that no new systematic transactions or changes to existing systematic transactions can be registered under the ARN code of the deceased distributor. In cases where an ARN holder has procured business before the demise and has yet not received commission from an AMC, commissions will be paid to the legal heir or the nominee till the time the ARN code of the deceased distributor is not changed by the investor.

AMFI has extended the deadline for completing the process of issuing employee unique identity number (EUIN) to June 1, 2013. However, the deadline for transactions originating from SMS, stock exchange platform, ATM, call center has been extended to August 1, 2013. AMCs shall highlight in the KIM the importance of providing EUIN, particularly in advisory transactions, and state that EUIN will assist in tackling the problem of mis-selling even if the employee/relationship manager/sales person leaves the employment of the ARN holder/sub broker.

Capital market regulator SEBI could issue guidelines to companies on use of Twitter, Facebook, and other social media for disseminating information to clients and shareholders, following the lead of its American counterpart, the Securities Exchange Commission (SEC). Further, the Indian regulator will soon hire staff to sift through social media sites and blogs to unearth tips that could impact stock price before they have been disclosed through official channels. On April 2, 2013 SEC issued rules on use of social media by companies for disseminating non-public material information. The provisions for the same regulations (similar to SEC) are contained in SEBI's Prohibition of Insider Trading Regulations, under Schedule II, which spells a Code of Corporate Disclosure Practice. The broad rules set by SEC could be adopted by SEBI.

According to SEBI, private placement to less than 50 investors has been permitted as an alternative to new fund offer to the public, in case of infrastructure debt funds (IDF). IDFs, which can be set up like mutual funds, can invest funds collected for their schemes in bonds of public financial institutions and infrastructure finance companies. In case of private placement, the mutual funds would have to file a placement memorandum with SEBI instead of a scheme information document and a key information memorandum. However, all the other conditions applicable to IDFs offered through the NFO route like kind of investments, investment restrictions, etc. would be applicable to IDFs offered through private placement. The asset management companies should ensure that the placement memorandum is uploaded on their websites after allotment of units, and on the website of a recognized Stock Exchange, where it is proposed to be listed, at the time of listing of the scheme. Further, the strategic investors in the IDF has been expanded to include FIIs registered with SEBI which are long term investors subject to their existing investment limits. The categories of FIIs designated as long-term investors only for the purpose of IDF include foreign central banks, governmental agencies, sovereign wealth funds, international organisations, insurance funds and pension funds.

Distributors of Indian mutual funds abroad are currently exempted from registration, certification, and the Know Your Distributor (KYD) process. While AMFI registration is not necessary as per SEBI guidelines, the ARN committee has suggested that overseas distributors may be requested to register with AMFI for tracking and industry MIS (Management Information System) purposes. ARN Committee is in the process of finalising suitable guidelines in this regard. An earlier letter from AMFI had recorded a relaxation in guidelines for overseas distributors. Overseas distributors did not need a certification from the National Institute of Securities Markets (NISM) or AMFI registration. The exemption had originally been given on account of logistical difficulties involved in registration of overseas distributors.

The Financial Sector Legislative Reforms Commission (FSLRC) has recommended what can be called a changeover from an area-based division of regulators to a task-based division. Today, each agency like the SEBI or the IRDA or the FMC looks after one type of financial service or one area. In the FSLRC’s recommendations, this would be replaced by a horizontal structure whereby the basic regulatory and monitoring functions of all areas would be done by a Unified Financial Agency (UFA). All consumer complaints, regardless of the area, will be handled by a Financial Redressal Agency (FRA). There will be a single tribunal, the Financial Sector Appellate Tribunal (FSAT), which will hear appeals regarding the entire sector. There are also three other agencies in the recommendations, along with the Reserve Bank of India, which will continue to oversee banking. This new horizontal structure serves the interests of the consumers of financial services (be they individuals or businesses) much better. For one, it should eliminate regulatory arbitrage. SEBI, IRDA, FMC, and PFRDA etc could easily continue operating as isolated departments of a nominally unified financial regulator. An external agency that responds to consumer complaints could do little else but respond on a case-by-case basis. Still, if these recommendations are implemented, it would be a huge step forward. Of course, that is a big ‘if’. Building a new structure involves tearing down many old ones and that never comes easy in the government.

FUND FULCRUM

 April 2013

Improved market sentiments helped the mutual funds' assets under management (AUM) soar by over Rs 1.5 lakh crore to touch Rs 8,16,400 lakh crore in 2012-13, according to latest data available with the Association of Mutual Funds in India (AMFI). The total AUM rose by a staggering Rs 1.51 lakh crore or an increase of 23% during 2012-13 from Rs 6,64,792 crore in the preceding fiscal. Mutual Fund assets have been growing since the January-March quarter of 2012. Indian mutual funds’ average AUM rose by almost 4% or Rs 29,900 crore to Rs 8.16 lakh crore in the January-March 2013 quarter from Rs 7.87 lakh crore in the previous quarter as per the latest numbers released by AMFI. This is the highest level since September 2010 when AMFI started declaring quarterly average numbers and the fourth successive quarterly gain in AUM. AMFI has also started disclosing AUM of direct plans that were launched on January 1, 2013. These plans enable investors to invest directly through the fund house instead of through distributors. Returns of these plans are also higher than the regular plans owing to a lower expense ratio, as they do not include distribution charges. The latest AMFI data indicates that average AUM of direct plans was around 15% of the industry AUM, primarily from debt-oriented funds.

Most of the fund houses, including the top-ranked HDFC, Reliance, ICICI Prudential, and UTI saw their AUMs rise during the last quarter. However, fund houses like Sahara, BNP Paribas, Edelweiss, ING, and Canara Robeco witnessed a decline in their AUMs from the levels seen in the previous fiscal. Of the 44 fund houses, 39 entities saw their AUMs rise during the period. Market experts largely attribute the rise in AUM to a number of factors, including steps taken by the government and the market regulator to revive equity culture in the country and help channelise household income into stocks and mutual funds. In the past fiscal, Reliance Mutual Fund's assets have grown by Rs 16,468 crore amounting to 21%, while that of HDFC Mutual Fund has increased by Rs 11,842 crore translating to a 13% growth. HDFC Mutual Fund retained its top slot with an AUM of Rs 1,01,720 crore, followed by Reliance Mutual Fund (Rs 94,580 crore), ICICI Prudential Mutual Fund (Rs 87,835 crore), Birla Sun Life Mutual Fund (Rs 77,046 crore), and UTI Mutual Fund (Rs 69,450 crore) in the top five list.

India’s equity mutual funds lost a little over 12,000 folios daily, on an average, in 2012-13. Such a high erosion of equity investors’ base has pushed the sector back to pre-2008 levels, as close to 45 lakh accounts were closed during the year. Despite being a year when the country’s benchmark indices surprised market participants by moving unexpectedly higher, retail investors closed their accounts and exited the markets at every rise. The net outflows from equity schemes touched an all-time high, gross sales remained poor, and incessant redemption requests did not let the equity category grow. This not only depressed the sector’s sales and marketing heads but also made life difficult for investment managers, who could not participate in the rally as redemption pressure kept forcing them to liquidate holdings from time to time. Even in March 2013, when net inflows turned reasonably positive in equities, the sector ended with a loss of another 223,000 folios.

After nine months of successive outflows, equity mutual funds received Rs 514 crore net inflows in March 2013, partly due to the six RGESS, which closed for subscription in March 2013. Gross sales (existing and new schemes) stood at Rs 3872 crore against which gross redemptions stood at Rs 3358 crore resulting in a net inflow of Rs 514 crore. RGESS funds collected Rs 242 crore. In addition, as the tax season closed in March 2013, ELSS received Rs 254 crore net inflows. The last time the industry clocked a net inflow of Rs 506 crore was in May 2012.  As the markets started to pick up in 2012-13, many investors redeemed from equity funds, which resulted in net outflow of Rs 12,931 crore in FY 2012-13. Liquid funds recorded net outflow of Rs 1.09 lakh crore in March 2013. Corporate investors generally pull out money in the last week of March and infuse commensurate money in the first two weeks of April.

Helped by robust inflows of Rs 90,183 crore in debt funds, the mutual fund industry managed to gain Rs 1.14 lakh crore during FY 2012-13, shows SEBI data. Compared to FY 2011-12 when the industry saw net outflow of Rs 25,653 crore from debt funds, in FY 2012-13 debt funds saw net inflows of Rs 90,183 crore with an increase of more than eight lakh new folios. Out of this, gilt funds added 29,573 folios while liquid funds saw an increase of 12,681 folios in FY 2012-13. Widespread expectations of softening interest rate regime brought gilt funds in the spotlight in 2012 with the category receiving Rs 3,975 crore net inflow compared to Rs 20 crore net outflows the previous year. The net assets of gilt funds zoomed 121% from Rs 3,659 crore in March 2012 to Rs 8,074 crore in March 2013. As markets gained momentum in 2012, investors cashed out of equity funds resulting in a net outflow of Rs 14,587 crore in fiscal 2012-13. The industry saw a drop of more than 44 lakh investor accounts from equity funds. This drop can be attributed to redemptions, folio consolidation, and scheme mergers. The net assets of equity funds dropped from Rs 1.82 lakh crore in March 2012 to Rs 1.72 lakh crore in March 2013. Overall, the industry ended the year on a positive note, helped by inflows in debt funds. The industry received net inflows of Rs 76,539 crore compared to net outflows of Rs 22,024 crore during the previous year.

Piquant Parade

Axis Asset Management Company Ltd. has applied to the Pension Fund and Regulatory Development Authority (PFRDA) to become a pension fund manager under the National Pension System (NPS). According to the AMC, it plans to set up the fund, which will be a joint venture between Axis AMC and Axis Bank. The fund house is expected to file its application to the PFRDA very soon. Reliance, UTI Retirement Solutions, ICICI, Kotak, and State Bank of India (SBI) are the existing pension fund managers.

Eyeing greater foreign fund inflows, Motilal Oswal Asset Management Company might rope in a strategic partner to gain distribution strength in international markets. Motilal Oswal AMC, which runs Motilal Oswal Mutual Fund, is also trying to expand its exchange-traded fund (ETF) product range. The company plans to become an “expert equity house” and a preferred provider of “building blocks for asset allocation” over the next five years.

Industry body AMFI has released advertisements inviting applications for the post of a CEO for self- regulatory organization (SRO), which AMFI is proposing to form to regulate distributors. AMFI has said that the CEO of the proposed SRO should have knowledge about the mutual fund industry, regulatory aspects related to mutual fund business, compliance, and distribution models existing in various geographies. AMFI has also invited applications for a CEO to run MF Utility portal. The advertisement states that the candidate should have knowledge about the mutual fund industry and its distribution activities, transaction processing, mutual fund products and practices adopted in the industry and regulations relating to mutual fund transactions. The MF Utility is likely to bring immense operational ease to distributors and investors. AMCs are expected to contribute Rs 5 lakh each for this project initially and the operational cost is likely to be funded according to the number of transactions, which an AMC gets. Both the candidates should be post graduate/PGDBM with minimum 15 years of experience in financial services sector with proven track record.

To be continued…

NFONEST

April 2013

IT relief for under subscribed RGESS?

Market regulator SEBI is looking at how the interest of RGESS investors can be safeguarded with regard to I-T relief even if fund houses return their money for failing to raise the targeted amount. As per SEBI regulations, if a new fund offer (NFO) is not able to garner the minimum amount, the fund house has to return the money to investors within a certain period, failing which it has to pay penal interest of 15% to the investor. With some fund houses not being able to mop up the minimum subscription for the RGESS, they would be required to return the money to all those who had invested in the scheme. However, in that case, the investors would lose out on income tax relief to which they were otherwise entitled to. Under the scheme, an individual with an income of under Rs 12 lakh would get tax incentives for investing up to Rs 50,000.

With high volatility ruling the roost in the stock markets, equity NFOs are conspicuous by their absence in the March 2013 NFONEST.

BNP Paribas Government Securities Fund

Opens: April 18, 2013

Closes: April 29, 2013

BNP Paribas Mutual Fund has launched the BNP Paribas Government Securities Fund, an open ended long-term gilt fund. The objective of the fund is to seek to generate income and capital appreciation by predominantly investing in a portfolio of government securities of various maturities. The fund shall invest its entire corpus in Government Securities issued by Central / State government, Treasury Bills, Reverse repos in Government Securities, and CBLO. The cumulative gross exposure through government securities, treasury bills, and derivatives will not exceed 100% of the net assets of the fund. The fund's performance will be benchmarked against I Sec Composite Gilt Index. The fund will be managed by Puneet Pal.

BNP Paribas Capital Protection Oriented Fund–Series I (38M)

Opens: April 16, 2013

Closes: April 30, 2013

BNP Paribas Mutual Fund has unveiled a new fund named as BNP Paribas Capital Protection Oriented Fund - Series 1, a close-ended capital protection oriented fund. The tenure of the fund is 38 months. The fund has been rated AAA m fs (SO) by CARE. The investment objective of the fund is to seek capital protection by investing in fixed income securities maturing on or before the maturity of the fund and seeking capital appreciation by investing in premium of exchange traded options. The fund will allocate 80% to 100% of assets in debt securities including money market securities with low to medium risk profile. On the flipside, it would allocate up to 20% of assets in option premium with high risk profile. Of the investments in debt instruments, 95% to 100% of assets would be invested in AAA rated non-convertible debentures, up to 5% in certificate of deposits and up to 5% in commercial papers. The fund's performance will be benchmarked against Crisil MIP Blended Index. Debt portion of the fund will be managed by Puneet Pal, and equity portion will be managed by Shreyash Devalkar.

ICICI Prudential Multiple Yield Fund – Series 3 – Plan B

Opens: April 16, 2013

Closes: April 30, 2013

ICICI Prudential Mutual Fund has launched a new fund named as ICICI Prudential Multiple Yield Fund - Series 3 - Plan B, a close ended income fund. The tenure of the plan is 1100 days. The primary objective of the fund is to seek to generate returns by investing in a portfolio of fixed income securities/ debt instruments. The secondary objective of the fund is to generate long term capital appreciation by investing a portion of the fund's assets in equity and equity related instruments. The fund will allocate 65% to 90% of assets in short term and medium term debt securities / debt instruments and securitized debt with low to medium risk profile. It would allocate up to 10% of assets in money market instruments with low to medium risk profile. On the flip side, it would allocate 10% to 35% of the asset in equity or equity related securities with medium to high risk profile. Of the investments in debt instruments, 70% to 75% would be invested in non-convertible debentures and up to 5% in A1 rated certificate of deposits. The benchmark index for the fund will be Crisil MIP Blended Index. Rahul Goswami, will manage the debt portion of investments under the fund. The equity portion will be managed by Rajat Chandak. The investments under the ADRs/GDRs and other foreign securities will be managed by Atul Patel.

Mirae Balanced Fund, Mirae ETF, Canara Robeco Agribusiness Fund, Pramerica Diversified Equity Fund, HDFC Corporate Debt Opportunities Fund, Motilal Oswal MOSt Shares CNX 100 Equal weight ETF (MOSt Shares C100), BNP Paribas Russia Fund, Religare Corporate Bond Opportunities Fund, Axis Small Cap Fund, HDFC Capital Protection Oriented Fund Series - 1 (Plan 3), and Quantum Dynamic Bond Fund are expected to be launched in the coming months. 

GEMGAZE
April 2013

Global funds have made a dramatic comeback in the past year. Impressive returns from international funds have created an indelible impression on investors in such funds so much so that their lacklustre performance in the previous year has been erased from their memory.

The five sparkling GEMs among the global equity funds in India in 2012 have retained their preeminent status in 2013 also.

Principal Global Opportunities Fund Gem

Launched in March 2004, Principal Global Opportunities Fund is the oldest global fund in India. With an AUM of Rs 32.51 crores, Principal Global Opportunities Fund has earned a one-year return of 6.48% as against the category average of 4.65%. Being a feeder fund, the performance of the fund depends entirely on Principal Global Investors –Emerging Market Equity. 95% of the portfolio is in equity, predominantly mid and small cap stocks. The fund is benchmarked against the MSCI World Index.

Templeton India Equity Income Fund Gem

With an AUM of Rs 997.82 crores, the one-year return of the Templeton India Equity Income Fund is 9.13% as against the category average of 2.46. Since its launch in April 2006, the fund has delivered two times returns of its benchmark index BSE 200. Since 2006, the fund has given 108% returns, while its benchmark index BSE 200 has delivered just 48.4%. The fund follows value investing and the fund's strategy is to select good dividend yielding companies across various sectors in Indian and overseas markets. At present, the fund has exposure to various sector themes such as auto, cement, chemicals, minerals, power, and semi-conductors in emerging and Indian markets. The fund's exposure to such a wide range of themes has ensured reasonable returns in the long term. Interestingly, over the years, the fund’s portfolio has not undergone a lot of change but for some periodical rebalancing. The fund's overseas exposure is spread across markets such as China/Hong Kong, Taiwan, Korea, and Turkey. The fund is benchmarked against the S & P BSE 200.

DWS Global Thematic Offshore Fund Gem

DWS Global Thematic Offshore Fund was launched in August 2007. With an AUM of a mere Rs 8.57 crores, the one-year return of DWS Global Thematic Offshore Fund is 11.66% as against the category average of 4.65%. The entire portfolio is invested in DWS Invest Global Thematic Fund. 99.57% of the portfolio is in equity, with a mere 0.43% in cash. The fund is benchmarked against the MSCI World Index.

Sundaram Global Advantage Fund Gem

Sundaram Global Advantage Fund was launched in July 2007. The fund has an AUM of Rs 48.76 crores. The one-year return of the fund is 9.99% as against the category average return of 4.65%. The fund has invested in 10 foreign equity mutual funds, with Fidelity South East Asia and DB Tracker Emerging Markets Asia being the top two funds. Only 67% of the fund’s assets are in equities with the rest in cash. The fund is benchmarked against the MSCI Emerging Markets Index.

ICICI Prudential Indo Asia Equity Fund Gem

ICICI Prudential Indo Asia Equity Fund was launched in September 2007. The fund has an AUM of Rs 153.54 crores. Its one-year return is 6.46% as against the category average return of 3.9%. 31.48% of the portfolio is in Eastspring Investment Asia Equity Fund and 68% of the portfolio is in large cap stocks. Nearly 50% of the portfolio is in financial services stocks, with technology and energy constituting 11% and 8% respectively. The Fund is benchmarked against CNX Nifty (65) and MSCI AC Far East Free Ex-Japan (35).

FUND FLAVOUR

April 2013

What is in a Mutual Fund name? A lot, actually…

A few years ago, the Securities and Exchange Commission, or SEC, passed a rule that requires mutual funds to invest 80% or more of the fund assets into securities that are compatible with the fund name. For example, the XYZ Long-Term Bond Fund would need to keep at least 80% of the fund's assets in long-term bonds or it would be in violation of this rule. That means no matter how inexpensive the stock market looked or how risky management believed long-term bonds were at any given time, they would still be required to park the money in long-term bonds.

What, then, is the precise difference between a global mutual fund and an international mutual fund? A global mutual fund invests in assets around the world including the home country. An international mutual fund invests in assets around the world excluding the home country. One lesson to take away from this is that the name of your mutual fund really does matter. International or global mutual funds expose investors’ money to foreign economies. Majority of the existing ones we have are fund of funds. This means they invest in a fund or funds (usually managed by the same mutual fund company) that invests in the target economy. Some global funds like Franklin Asian Equity, Sundaram Global Advantage are region specific whereas others like Mirae Asset China Advantage, ICICI Prudential US Bluechip Equity are country specific. Commodity based global funds like DSP BlackRock World Gold are also popular.

Why global funds have caught interest

We live in a true global economy, and only investing in the domestic markets means lot of missed opportunities. Market dynamics are different in different countries. International funds capitalize on this fact. If Indian markets did not do well in a certain period you could still have made some returns if you were invested in some other economy that did. Another fact is that certain locations have unique opportunities due to the presence of certain natural resources or some other advantage. The world economy looks good, and in general markets are giving quite decent returns on the investments. Maybe you are already aware of such growing markets around the world and maybe, would like to invest in the international market. But the fact remains that most of us do not have enough time, and expertise to do this. This is the basic reason why we invest in the mutual funds in the first place. So by investing in international mutual funds, you let the experts manage your money, and take care of the intricacies. You still are able to reap benefits that might not be available in the domestic markets. Diversification is a commonly cited benefit offered by global mutual funds. If the Indian economy is not doing well you can still benefit by having some of your money in other economies that are. Similarly even if you expose your investment to another economy that happens to work in the same tempo as the Indian economy (in technical terms a highly correlated one) you might still make gains due to currency movement. Most of the benefits listed above can be realized only when the scale of investment is large.

Why global mutual funds lack thrill

Global funds are a sort of theme funds. Unlike diversified equity funds, theme funds have a shelf life after which it would be unproductive to stay in them. Since most of them are fund of funds, management fees are charged at multiple levels and are obviously higher. When it comes to taxation, overseas funds are treated as debt funds. Being fund of funds scheme also implies that the fund managers of these global funds are not equipped to select the right shares from target economies themselves. Investors would be passively relying on fund managers of underlying schemes. Just like any other investment, international investments carry certain risk factors that are unique to such investments. Currency fluctuations have a considerable impact when dealing internationally, and thus should be looked into. Moreover, some countries are more politically unstable, so your mutual fund should always take into account such risks.

But let us first look at the bottom line of these mutual funds

Currency risk, tax treatment and India’s out performance vis-à-vis overseas markets have remained the key detriment to the growth of global funds. 2012 has not been a good year for overseas fund of funds because India was an out performer compared to other markets. The performance of funds investing in gold mining companies was tepid as these companies did not do too well. One of the primary reasons for the slow take off of these funds has been the love for Indian equities among investors and distributors. Indian markets gained 26% last year while the overseas fund category delivered 14%. Even over a three-year timeframe when global funds delivered around 6%, domestic funds focused on sectors like healthcare (17%), FMCG (30%) and financial services sector (14%) delivered comparatively better results. Based on returns of international funds by valueresearch.com, these funds have not performed better than diversified equity funds. While the average one-year return of diversified equity funds have been about 31% in January 2013 most international funds have had lower returns for the same period and certain funds clocked negative returns. Overall, a majority of the underlying funds (in case of international funds that are fund of funds) were rated poorly by international mutual fund rating agencies.

Pull vs. push

The low popularity of global funds can be attributed to the fact that these funds are looked at only as a diversification tool, which is largely marketed to sophisticated investors with a higher risk appetite. Advisors recommend keeping very low exposure to such funds. AMCs do not focus on mass retail investors. The assets of overseas funds have only declined since 2008. These funds were managing Rs 2947 crore in September 2008. Currently there are 32 global funds with assets under management of Rs 2295 crore, constituting a mere 0.3% of industry’s total assets. AMCs do not actively promote such funds on an ongoing basis due to lack of advisors’ and investors’ interest in these funds. It is more of a ‘pull’ product than ‘push’. Investors come if they are bullish about a certain market or theme’s performance in the near term and get out if they make some money. Retail investor’s averseness towards these funds is evident by the tepid response in NFOs. The recently launched ICICI Prudential US Equity Fund collected approximately Rs 56 crore. DSP BlackRock, which has a major share in this category (Rs 1009 crore as on November 2012), mopped up Rs 26 crore in its DSPBR US Flexible Equity Fund launch. Franklin Templeton’s FT India Feeder - Franklin U.S.Opportunities Fund got a better response collecting Rs 104 crore. Despite the not so enthusiastic response, many AMCs are planning to launch overseas funds to strengthen their product basket.

New funds in the pipeline

HSBC Mutual Fund plans to launch an HSBC Asia Pacific (Ex Japan) Dividend Yield Fund, which will invest in HSBC Global Investment Funds (HGIF) Asia Pacific Ex Japan Equity High Dividend Fund. Also in the pipeline is a HSBC Russia Fund. After partnering with Schroder, Axis is launching a fund called Axis Asian Income Fund, which will invest in Indian debt and in Schroder International Selection Fund Asian Opportunities Fund. Franklin Templeton is launching a fund called FT India Feeder – Asia-Lat Am Fund, which will invest in emerging markets in Asia and Latin America. Reliance AMC too plans to launch its Reliance US Equity Opportunities Fund. However, this fund will invest directly in US securities unlike a fund of fund, which invests in an existing master fund. AMCs with a foreign partner have usually taken the feeder fund route while others have invested directly in overseas stocks.

Will a global fund add value to your portfolio?

Mutual funds offer investors the opportunity to participate in the growth of some of the country's largest and most profitable companies. There is no dearth of choice here since hundreds of domestic equity funds promise exactly this. A handful of these deliver on this promise on a consistent basis. However, at times, even the best of the lot gets weighed down. However, not all funds are suffering. Many international funds seem to be doing well in an otherwise despondent market. For instance, Motilal Oswal MOSt Shares Nasdaq-100 ETF has delivered returns of 45% in the past one year. There are a few global funds being offered in the country, with Motilal Oswal joining the fray just over a year ago, while Franklin Templeton Investments launched a fund a few months ago. ICICI Prudential Mutual Fund is the latest asset management company to launch a product in this segment and more such funds are in the pipeline.

Does this imply that the investors who are disappointed with the local market should add a global fund to their portfolio? For most of us, investing beyond the border is an alien concept. We have a domestic bias in our investments, and for good reason. Being a growing economy with a powerful domestic consumption engine, we are spoilt in terms of expected returns from our investments. It makes sense to diversify through an international fund. Besides diversification, another benefit that these funds offer investors is access to unique investment opportunities that are not available in India. The best policy for investment is to have an international investing formula - 70% domestic investment and 30% international diversified funds investment.