It's been difficult to make money from equities in the last three years. The BSE Sensex has largely traded between 15,500 and 21,000 in the past two years, and if you’d not got your timing right on the broad market, it would have been tough to beat even fixed deposit returns. Yes, there have some money-making opportunities like in the fast-moving consumer goods sector or stock-specific stories, but otherwise it’s mostly been range-trading.
A spate of positive news from the government in the past few weeks has taken the stock market indices to a 15-month high and the Sensex is up 15.5 per cent over the last 12 months. But over a two-year period, the Sensex has lost 6.75 per cent. Even the three-year compounded return is a measly 3.85 per cent, which is less than the yield on expensive real estate.
But one investment category that has done very well this year is international mutual funds. There has been the kicker of 8-9 per cent rupee depreciation in one year, which adds to the returns, but even without it international funds have given reasonably good returns. Eleven of 32 international funds tracked by Value Research have earned over 25 per cent. The best performer is the Motilal Oswal MOSt Shares Nasdaq-100 ETF (exchange-traded fund), which is up 40 per cent in one year. This Nasdaq-100 index ETF offers domestic investors an option to invest in the best tech companies of the world. Apple has nearly 20 per cent weightage in the index, and since the stock has gained 50 per cent over the past year, the index has managed to reach a 12-year high. If you think Apple is going to crack the four-figure mark from the current $673.5, then this ETF may make a good investment. Along with Apple, the other heavyweights of this index include Microsoft, Google, Oracle, Amazon and Intel, and all of these add up to 46 per cent of weightage.
The other international funds available for Indian investors through the mutual fund or ETF route invest in Hong Kong’s Hang Seng index, China, Asean, other emerging markets and even Brazil by geographies. Others such as gold mining, real estate, mining, agriculture, commodities and energy offer sector or thematic options. Some of these are index funds, while the others are fund of funds. The JP Morgan JF Asean Equities Off-shore fund, a fund of fund investing in South East Asian companies, has posted 36.5 per cent annual gain with Singapore’s DBS Group being its top holding. Fidelity Global Real Assets, up 33.5 per cent in a year, is a fund of funds investing in commodities, property, industrials, utilities, energy, materials and infrastructure, with Exxon being its top holding.
Investing abroad gives an option of geographical diversification. For a long time, Indian investors didn’t have the option of buying foreign securities, which is now opened up. Also, the Indian market was providing better returns than many other global markets, which isn’t the case right now. Even as our current market rally progresses, investors could think of starting to learn the ropes.
Domestic investors also need to look at global investments more seriously considering that when our government was hit with policy paralysis, there was little money-making opportunity besides gold and a handful of stocks and sectors. Yes, the currency is a risk but one can factor that in or even invest abroad as a currency play. The existing funds and ETFs provide good opportunities to access global markets in a tax-efficient manner. Derivatives of the Dow Jones Industrial Average, the S&P 500 and the FTSE 100 are traded on the National Stock Exchange but unlike the mutual funds, these are not exempt from long-term capital gains tax. And if you want to buy Turkey, lumber or natural gas ETF, you can always open a brokerage account to trade abroad up to an investment of $200,000 (Rs 1 crore) per person a year.