Brokerages are not the only ones to latch on to the global diversification theme. Axis Mutual Fund on Thursday announced its first dedicated global feeder fund Axis Global Alpha Equity Fund of Fund, an open ended scheme that will invest in Schroder International Selection Fund Global Equity Alpha (SISFGEA). This is the third scheme from the Axis MF stable after Axis Growth Opportunities Fund and Axis ESG Equity Fund that provides exposure to global equities.
SISFGEA, managed by the Schroders Global Equities team based in London, uses a bottom-up approach to pick quality growth companies that offer a sustainable competitive advantage but are currently mispriced. The scheme has given year to date returns of 13.5 per cent and three-year annualised returns of 10.7 per cent, according to Morningstar.
The fund house believe that the time is right for Indian investors to start looking at making global allocations in order to reduce the impact of home bias and improve the risk-return profile of their equity allocations.
“Exposure to global investment opportunities can broaden the Indian investor’s investment universe and also help them improve their portfolio through diversification benefits,” said Chandresh Nigam, MD & CEO, Axis MF.
There are 38 international funds in the market currently with total assets of about Rs 5,000 crore, according to Value Research. Thirty two of these are equity oriented and have given average one year returns of 19.3 per cent. Nine of them focus on the US market.
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Earlier this year in April, Motilal Oswal Asset Management launched an index fund that tracks the S&P 500, which covers about 80 per cent of the market capitalisation of listed stocks on US exchanges. Many of the top companies in the S&P 500 include technology firms and financial businesses.
Financial planners recommend setting aside 5 to 10 per cent of one’s portfolio in international funds.
“The total US stock market makes up over 40 per cent of global equity markets. Most of these companies are mega-cap companies with market capitalizations above $300 billion. Since 2010, the US market has significantly outperformed Indian markets, and it is not surprising to see interest from Indian investors at this juncture,” said Pritam Deuskar, founder of Wealthyvia.com.
Some experts caution against investing in the US alone as it may not be able to repeat the performance posted in the last decade.
“To get the best out of the global allocation, investors should look at allocating with a long term perspective into strategies that can invest in the best ideas globally without limiting themselves to any one country or sector or theme,” Axis MF said in a note.
International funds are treated as debt funds for tax purposes. Short term gains are added to the income and taxed in line with slab rates. Long term gains are taxed at 20 per cent with indexation.