By Urvashi Valecha
As the equity markets continue to hit new highs each and every week, mutual fund homes are seeking for methods to diversify threat. One of the approaches adopted by the sector is to invest in worldwide markets. Two new fund delivers (NFOs) that opened for subscription final week will invest a component of the investible corpus in overseas stocks.
Axis Special Situations Fund and the Aditya Birla Sun Life ESG Fund, which opened for subscription final week, would be investing up to 30% and 35% of corpus in foreign equity markets. According to the fund homes, worldwide equities as an asset class will aid investors diversify their exposure to equities and aid de-threat the portfolio. Additionally, investing in foreign equities not only assists investors produce improved returns more than a period of time, but also provides them access to worldwide firms and development stories.
Ashish Naik, fund manager – equity, Axis AMC, stated, “Foreign equities should be looked at as a different asset class altogether which offer diversification. One can get an exposure to a different economy which has low correlation with the Indian economy and can diversify risks.”
These funds are getting pitched as thematic funds possessing the possible to produce improved returns for the reason that of diversification. There are quite a few fund homes that are launching multi-asset funds and funds that invest in each Indian and foreign equities. This could come to be mainstream.
The compounded annual development price (CAGR) returns from domestic equities have been 9.4% for the final 1 year, 9.05% more than 3 years and 11.07% more than 5 years. Market professionals think that investors will need to tone down their expectations from the marketplace in spite of the sharp rise in markets given that March.
According to professionals, solutions that present exposure to overseas markets are a lot more appropriate for matured investors who have a sizable exposure to domestic equities and are seeking to additional diversify their portfolios. G Pradeepkumar, CEO, Union AMC, stated, “These kind of funds which invest in foreign equity are for investors who have a sizable exposure to the Indian markets and want to diversify their portfolio. They should be subscribed to more from the view of diversification and de-risking rather than from the view of generating higher returns.”
Most funds that diversify their investments by placing capital into foreign equities as an asset class have managed to beat the CAGR returns that the benchmarks have provided more than a period of 1 year, but when compared to CAGR returns more than 3- and 5-year periods, they have underperformed the indices.