International funds have offered an average return of around 2.32% in three years, data crunching by ETMutualFunds showed. There were around 32 schemes in the category that have completed three years of existence in the market.
In three years, around 12 schemes offered negative returns. Edelweiss Gr China Equity Off-Shore Fund lost the most at around 19.48%. Axis Greater China Equity FoF lost 14.35% during the same period. Two schemes – PGIM India Emerging Markets Equity Fund and Invesco India – Invesco Global Consumer Trends FoF – lost around 13% in three years.
The overseas indices like NASDAQ, DAX, FTSE 100, NYSE, and Dow Jones were also up in the last three years, ranging from 4% to 8%. That could partly explain the better performance of international funds during the horizon. However,.Hang Seng lost the most at around 10.71% in three years.Also Read | Multi asset allocation funds offer upto 11% in 2024 so far, top the return chart
Now the question is what is the reason for such performance? “The COVID-19 pandemic brought unprecedented volatility to global markets, with the MSCI World Index dropping by over 20% in March 2020, only to rebound strongly in the following months. This volatility underscores the risks associated with international investing, particularly in response to global crises,” says Chakravarthy V., Cofounder and Director, Prime Wealth Finserv Pvt Ltd.
The international funds offered an average return of around 5.78% in three months, 9.67% in six months, 16.66% in one year, 8.32% in five years and 6.13% in 10 years, according to data by ACE MF.
Kotak NASDAQ 100 FoF and Motilal Oswal S&P 500 Index Fund offered around 13% in three years. Four schemes offered around 12%. Mirae Asset Hang Seng TECH ETF FoF lost around 11.64%, 12.06%, and 15.29% in three months, six months, and one year horizon.
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Next question comes: should you invest in these schemes? “Despite these challenges, diversification remains a key advantage of international funds. Portfolios diversified across geographic regions could reduce volatility over time, as markets in different countries often do not move in tandem,” says Chakravarthy.
He also said “For Indian investors, this means international funds can offer a hedge against domestic market downturns and exposure to industries or sectors not well represented in the Indian market.”
Aditya Birla Sun Life Mutual Fund recently stopped accepting fresh investments in its international fund. Does that mean that international schemes will once again stop accepting money if they once again breach the overall limit of $7 billion allowed for mutual funds to invest in overseas stocks?
“RBI has imposed limits on overseas investments for domestic mutual funds. This is currently capped at $7billion for the entire industry, with each asset management company allowed to invest up to $1 billion in foreign securities. Since Aditya Birla Sun Life Mutual Fund has already reached this limit, the fund house stopped taking any fresh investments into the fund,” said Shruti Jain, CSO, Arihant Capital.
“Unless there are some redemptions, or the RBI increases the overseas investment limit, the fund house won’t be able to take any new investments. In this regard, if an investor is keen on investing in international equities, they can either do it through another fund house or can consider opening a trading account with an international broker and invest directly either in exchange traded funds or stocks,” she added.
The category has around 32 schemes that have completed three years,out of which 11 schemes offered double-digit returns, 15 schemes offered single-digit returns, and 12 schemes offered negative returns.
So if you are interested in investing in international funds, what are the things you should keep in mind? “For new investors, it is suggested not to enter international funds and consider domestic markets at the moment. This is due to the fact that the Indian market is advantaged due to the overall optimism. To get global exposure, one may consider up to 10-15 percentage in international funds after due research and analysis,” recommends Chakravarthy V.
“Existing investors should assess the performance of their international holdings within the broader context of their portfolio and long-term objectives. They should better rebalance to maintain an intended asset allocation. However, liquidation of international funds is not suggested if it contributes less than 10-15% of your entire portfolio,” he added.
