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Over the last few months there have been more than a handful of global fund launches and there are more in the pipeline. These funds invest in global stocks and/or mutual funds that invest in global markets. Here’s a look at what you must take into account when you invest in such funds … The broad investment objective of global funds is to provide long-term capital appreciation by investing in securities from global markets or overseas mutual fund schemes that invest in diversified portfolios of securities, as prescribed by SEBI from time to time. With such funds investing in varied countries and economies, you now have the means to diversify your portfolio beyond the Indian equity market. More specifically, for investors who have already taken positions in local equities and are looking for diversification into other geographies, global funds could be just what they need. To an Indian investor, these funds have opened a window to international asset markets. Types of global funds : While the main benefit of investing in global funds is the diversification it has to offer by virtue of investing in overseas markets, sadly most of the global funds launched so far have mandated to invest at least 65 per cent of their assets in Indian equities. They choose to invest only up to 35 per cent in global equities. This is done to ensure that the law accords them equity status from a taxation perspective. Global funds that invest a greater percentage of their assets in global share market cannot enjoy the tax benefits that equity funds are eligible for, i.e. tax free long term capital gains and a 10* per cent tax on short term gains. In the case of truly global funds (those that invest more than 35 per cent of their assets abroad), long-term gains are taxable at the rate of 10* per cent and short-term gains are taxable as per the slab rates applicable to the investor. However, remember that since diversification is the aim behind investing in global funds, and such funds are unlikely to occupy more than 10 per cent of your total portfolio, if you must diversify, do so regardless of the tax status of your investment. It is only then that your portfolio can actually reap the benefits of diversification. Further, since most global funds are investing predominantly in emerging markets, investors express concerns about the basic purpose of diversification being defeated. Nevertheless, while India itself is an emerging market, other emerging markets are driven by different factors, opportunities and threats and therefore, behave differently from domestic markets although they all fall under the broad category of ‘emerging’ markets. Tips to go : Lastly, choose your fund carefully. Study all the options that are available. Certain parameters that can be used to evaluate such funds are: the investment proposition offered by the fund, the fund’s investment processes, its long-term track record across market phases, especially the downturns and most importantly, compare it with other global funds of a similar nature. Most of all, keeping in mind the parameters listed above, look for the fund that would fit into your existing basket of investments. To read more about Mutual Fund click here
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