Japanese fund should be second choice

Start with US ones and have 10-15% exposure to global ones

Global mutual fund schemes haven’t had the best run compared to Indian equity funds in the past year. The best performing large-cap Indian scheme, HDFC Top 200, has given an annualised return of 65 per cent. Tata Growing Economies Infrastructure Fund 29 per cent. JPMorgan’s Greater China Equity Fund has returned 14.37 per cent and Mirae Asset China Advantage Fund 12.58 per cent.   

But fund houses have launched 10 schemes targeting global markets this year. Reliance Japan Equity Fund is the latest and first to target the world’s third-largest equity market, with $5-trillion market capitalisation. The NFO, which closes on Wednesday, may be timed well. Business ties between the two is expected to improve after Prime Minister Narendra Modi’s Japan visit from August 31.

Japanese stock market index Nikkei 225 has returned 77 per cent in three years. Among leading global markets, only Nasdaq, 92 per cent, has performed better. But over 10 and 15 years, Nikkei has underperformed most global indices. Over 15 years, the return is negative 13 per cent.

The Japanese financial crisis in the 1990s led to a fall in property prices. In December 1989, Nikkei hit a high of 38,957. Now it is 15,449. There is a long way to go. Also, the rupee has risen against the yen in the past year. Though over 15 years, it has depreciated 50 per cent. A falling rupee improves returns. The expense ratio will be up to 2.5 per cent.  

Reliance Mutual Fund seems to be betting on an improvement in the Japanese economy’s prospects. Chief Executive Sundeep Sikka says, “Japan is showing early signs of a revival, after two decades of deflationary growth, due to the coordinated efforts of Abenomics: Aggressive monetary policy, fiscal measures and economic reforms.”

Also, Japan has one of highest foreign-production ratios. The average is 20 per cent. Some top companies the fund would invest in have ratios of 45-50 per cent. The scheme will be managed from India and will invest in 30 companies. Nippon will advise on stocks.

Amit Trivedi, financial planner and director of Karmayog Knowledge Academy, says, “Investors should have exposure in international funds for two reasons: Portfolio diversification and children’s education abroad.” Since the latter is goal-based, it should not form part of an investment portfolio. According to him, the US, from a goal-based perspective, should be the first choice because a lot of people send their children for education there.

Other countries should be added to the portfolio later. A financial planner says, “Such funds are like mid-cap funds which have good potential but one should have restricted exposure to these.” Financial planners say from a portfolio diversifier perspective, one should start with five per cent exposure to international funds and gradually increase it to 15-20 per cent over time and countries.

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