Have some exposure to foreign funds

Rupee expected to remain stable. Look to nations that offer higher growth

It's been a below-average year for global equity funds. Last year, these returned 17.67 per cent on average against a 20.8 per cent rise in the Sensex, according to data from Value Research. But that has not stopped fund houses from offering more of these.  

Religare Invesco is offering an open-end fund of funds. It will invest in Invesco Global Equity Income Fund, a Luxembourg-based fund that invests primarily in equities of companies worldwide with assets under management of $525.23 million (Rs 3,260.21 crore).  

HSBC Managed Solutions is a multi-asset open-end fund of funds. It will invest in domestic and global equity funds.

DSP BlackRock is planning a global allocation fund that would invest in BlackRock's Global Allocation Fund, $100 billion, which invests in fixed-income securities and equity.

"Since investors are unsure whether to invest in the US, Europe, China or emerging markets, a fund like this makes sense. It is a good idea to have some allocation for the US markets because of the growth potential,” says Pankaj Sharma, head of business development and risk management, DSP BlackRock AMC.

To know where the fund will invest, check the offer documents and find whether allocations to the US, Europe or emerging markets will be equal or dynamic. Some focus on Asia, others on the US and South America.

Aviral Gupta, founder and investment strategist, Mynte Advisors, says, "The US markets have already seen a correction in technology and information technology (IT) stocks. So, the market may not be very attractive now. But European markets will see growth from current levels and it is a good idea to invest there."

But, like domestic equity funds, global ones may see more fluctuation in their returns. Vidya Bala, head of mutual fund research, Funds India, says with global funds the risk is similar to thematic funds’ and one be prepared for more cyclical returns. "If you look at stocks markets worldwide, in three to five years, there have been periods when Indian markets were volatile, but foreign ones stable. So, some small exposure is good.”

In any foreign fund, rupee volatility could be high. But the plus side is exposure to asset classes in other currencies and geographies.

Nevertheless, stick to your asset allocation and do not invest more than 10 per cent in foreign funds. If your global portfolio goes up to 15 per cent of your overall portfolio, reduce exposure in favour of domestic equity funds, say experts.

Global funds are taxed like debt funds if a major part is invested outside India. "These funds will give you exposure to technology and energy sectors, otherwise difficult. This is a good chance to get exposure to global funds with good holdings.”