International funds: Which are open and what alternatives do investors have?
Source: Live Mint
Indians invest in international mutual funds seeking exposure to leading global companies for many reasons – to diversify their portfolio, serve as a hedge against rupee depreciation, or as a strategic addition to their long-term financial planning. However, many popular international funds are closed for fresh inflows due to regulatory limits and fund-specific caps, leaving investors with limited options.
“The case for overseas investing remains strong and relevant, continuing to effectively address the specific purposes it has historically served,” said Nirav Karkera, head of research at Fisdom. “However, from an investor’s perspective, it’s disheartening that the limits imposed at both fund house and fund levels have not been revisited for quite some time. This is especially concerning, given the recent surge in demand for such opportunities, which far exceeds the current caps.”
The restrictions are particularly noticeable in funds that invest in the US markets, which are the most sought-after. The Motilal Oswal S&P 500 Index Fund and the Franklin India Feeder-Franklin US Opportunities Fund have the highest assets under management (see graphic).
“Among overseas funds, those offering exposure to US-listed securities and indices have garnered the most traction, quickly exhausting their allocated quota compared to funds focused on other international assets,” Karkera explained. “This trend can be attributed to the strategic advantages of investing in US stocks, including diversification, acting as an effective dollar hedge and gaining access to opportunities unique to the US market.”
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Despite these closures, a few options remain open for systematic investment plans (SIPs) and lump-sum investments. These include the Franklin India Feeder-Franklin US Opportunities Fund Growth, Edelweiss US Technology Equity Fund of Fund, Edelweiss Greater China Equity Offshore Fund Growth, and PGIM India Global Equity Opportunities Fund Growth.
The Mirae Asset NYSE FANG+ ETF Fund of Fund and the PGIM India Global Equity Opportunities Fund are among those that offer exposure to global tech giants and diversified equities, making them appealing choices for investors who missed the opportunity to invest in the now-closed US-focused funds.
Alternative routes
Some investors have turned to the Reserve Bank of India’s liberalised remittance scheme (LRS) to invest directly in overseas equities. LRS allows Indians to send money overseas for specified purposes.
However, this approach comes with its own challenges, including higher costs, currency conversion fees, and complex tax compliance requirements. Abhishek Kumar, a registered investment advisor, warns of the difficulties associated with LRS.
“Investors looking to circumvent the cap imposed by RBI using LRS can explore investing in overseas equities through direct equity. But this too comes with its own set of problems due to high cost and tax compliance issues. So investors are currently caught between a rock and a hard place until RBI relaxes the restriction, but given the pressure on the rupee, we think that’s not going to happen very soon,” he said.
