Falling rupee hits foreign equity schemes

Not only have they underperformed local funds but have also failed to beat FD returns in the last five years

The performance of international schemes offered by mutual funds has been severely hit by a falling rupee in the past year.

The average return of international funds is -11.01 per cent in the past year, among the worst across scheme categories. The value of Rs 100 invested a year ago stands today at Rs 88.99.

Gold funds have returned -5.2 per cent, while the Sensex is down 7 per cent in the past year. The rupee is down nearly 10 per cent against the dollar over the same period.

Hiren Dhakan, associate fund manager at Bonanza Portfolio, said, “The dollar has strengthened against most currencies. While this helps Indian mutual funds upfront, redeeming in securities other than the US is affected negatively. Global funds also carry a higher expense ratio as most are feeders into their parent funds.”

Some of the worst performing international schemes are HSBC Mutual Fund’s Brazil Fund and Emerging Markets Fund, Birla Sun Life Mutual Fund’s Latin America Equity Fund and Global Commodities Fund, DSP BlackRock Mutual Fund's World Energy Fund and Mining Fund and Mirae Asset Global Commodity Stocks Fund.

Vetri Subramaniam, chief investment officer at Religare Invesco Mutual Fund, said, “International funds as a category consist of varied funds representing different geographies and underlying currencies. Outcomes vary significantly across different international funds as they are not homogenous. The primary reason to invest in international funds is to diversify the portfolio. There could be periods during which some international funds outperform and in other periods they underperform.”

Anand Radhakrishnan, chief investment officer at Franklin Templeton Investments (India), said, “In the last two years, the Indian market has outperformed its Asian peers resulting in funds focused on local equity outperforming their Asian equity counterparts. To fully appreciate the benefits of diversification, investors need to evaluate funds through longer cycles.”

There are about 41 schemes offered by Indian fund houses in the international equity category. These schemes have assets under management of Rs 2,833 crore. Half of these schemes were launched during 2007-2010.

The annualised return of international funds as a category from a three-year perspective was 1.07 per cent and 1.74 per cent over five years.  Over the last three years, the annualised return of the Sensex was 13.05 per cent while local equity schemes, across the board, provided annualised returns of between 14 and 32 per cent.

Only 13 schemes in the international category managed to provide positive returns to investors, though many did not make more than three per cent in the past year. Motilal Oswal Most Shares NASDAQ 100 ETF Fund, DSP BlackRock US Flexible Equity Fund and Reliance Japan Equity Fund topped the charts with returns of 5.8-13.07 per cent.