Int’l funds in focus amid push for diversification

MFS show interest after Sebi eases investment norms

Two new international funds are hitting the market this week, taking the number of such offerings since last year to nine.

SBI Mutual Fund, the country's largest asset manager, has launched its first international offering, an open-ended fund that will invest in US markets. HSBC MF is launching a climate change fund of fund (FOF) offering.

Currently, there are 42 international funds with assets under management (AUM) of ~6,412 crore, the data from Value Research shows. Of these, only five funds have assets over ~1,000 crore.

The regulator doubled the limit of overseas investments for individual fund houses to $600 million last year, and quadrupled the quantum of investment that individual fund houses can make in foreign exchange-traded funds (ETFS) to $200 million. This, experts reckon, has encouraged top fund houses to look at the category more seriously.

SBI MF garnering a sizeable corpus may also fuel more interest in the category.

SBI MF'S FOF will invest in underlying Amundi Funds’ US Pioneer Fund, which is benchmarked against the S&P 500, manages AUM of $2.5 billion, and has ESG fully integrated into its investment process.

The top 10 holdings (as of January 31, 2021) are Microsoft, Apple, Alphabet, Amazon.com, Visa, Analog Devices, International Flavours and Fragrances, Elanco Animal Health, Mastercard, and Schlumberger. The top five sectors in which the scheme has invested are information technology, consumer discretionary, health care, financials, and industrials.

Vinay Tonse, MD & CEO, said: “SBI International Access-us Equity FOF is the first international offering from our fund house and allows investors to get an exposure to the well-diversified US Market, which has the highest market capitalisation and is a core component of major global indices. The investment process for the fund integrates ESG in every step of the process. This scheme will provide an international diversification to individual portfolio and allow investors the opportunity to invest in themes not available in the Indian market.’’

According to experts, a globally diversified portfolio will help investors take advantage of market cycles in different economies, while also mitigating single-country risk. US equities remain the top choice for investors owing to the strength and dynamism of the economy, capital investment, and global diversification. Structurally, the US market is exposed to high-growth industries and over 50 per cent of market earnings are derived overseas.

“Fund houses that do not have an international offering will hit the market with such funds,” said Sunil Subramaniam, managing director, Sundaram Asset Management. “US funds have been in focus because of the stellar returns over the past year. However, as the pandemic nears its end, many more geographies will see their economies recovering and fund houses will launch more diversified offerings.”

Financial planners recommend setting aside 5-10 per cent of one’s portfolio in international funds.

International funds are treated as debt funds for tax purposes. Short-term gains are added to the income and taxed in line with slab rates. Long-term gains are taxed at 20 per cent with indexation.