Tags:
Journalism of Courage
International funds in India continue to remain out of favour even after delivering strong performance over the last 18-24 months,when domestic equities have lagged behind. Navin Suri,MD and CEO,ING Investment Management tells Sandeep Singh about the need for Indian investors to step outside home shores to benefit from diversification and for better portfolio returns. Excerpts:
International funds have outperformed domestic markets over the last 18-24 months. What is your answer to the general argument that when India is growing at over 7 per cent,why invest abroad?
If you look at the last four years there has been a crash as well as a strong rally and such cases the bias is towards home. In 2009,most people missed the rally in the local markets and they then typically make that argument you referred to. It is when markets begin a volatile phase that people begin to think what should I do. Asset allocation is important and if you have risk appetite and risk profile,allocate your assets accordingly.
Why would you suggest international funds?
Diversification,either now or in future. You dont put all your eggs in one basket,and India is one basket whether in equity or in debt. Last year was great for global products. While the underlying assets generated returns,rupee depreciation significantly enhanced performance. I think investors should begin to accept the fact that there are lot more asset classes than they have known so far commodities,gold,agriculture,ASEAN,MENA etc. Globally you can get into commodities,which is not permitted in India,and commodity is a great hedge against inflation. One way of building a hedge in your own investible surplus is buying into exactly the same thing for which the prices are going up. Along with that if you have a call on rupee and if the rupee is going to depreciate then it will have a severe effect on the domestic equity market but if you are invested in global market,you can take advantage by being on the opposite side.
What are the reasons why they have not taken off in India?
India has done nothing in introducing investors to these funds. But if you see,there are all kinds of funds available commodity,agriculture,oil,gold,real estate and on various economies. Go where you are familiar and allocate between 3-5 per cent with some professional help. I would recommend investors to take the plain vanilla commodities,real estate,oil the ones that they are familiar with and feel confident about.
How long will it take to be accepted by retail investors in India?
Typically anything which is new follows a particular cycle in its adoption. When we introduce a new product,typically super HNIs are the first ones to adopt. It sticks there for 2-3 years and then begins to percolate down to the next set of affluent investors and then it goes retail. Had the collapse not happened,I think we would be at the cusp of mass affluent and retail. Now it will take 2-3 years more.
As of now it is foreign mutual funds that are mostly selling these products. Do you think it is important for domestic fund houses with their large distribution network to get aggressive for this to become successful?
That will definitely help. Foreign players in any market have the greatest credibility on international markets and it is obligatory upon them to bring their best performing strategies globally to local markets. I think that distribution capability for foreign players is a challenge,and a partnership is needed between large distributors such as banks and mutual funds.
What would the tax implication be on such products?
Most of these funds are categorised as feeder funds and are categorised as fund-of-funds. If you remain invested for more than a year,the tax liability is similar to debt products. I think that the benefits of diversification,return & performance are far greater than worrying about taxation. It should be less of a challenge more so because we are only recommending 3-5 per cent allocation in global markets where return on risk adjusted basis will be good.
