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Is market turmoil affecting the performance of your MF investment? Diversify in these funds to make steady returns

Amitava Chakrabarty
mutual funds, MF, equity mutual fund, equity MFs, equity funds, domestic equity funds, international funds, debt funds, market risks, investment portfolio, portfolio diversification, CAGR

Nilesh Das (name changed) is not afraid of taking market risks despite loosing all the money-that he inherited in the form of a few high-value stocks from his father-through intra-day tradings done by his authorised sub-broker of the brokerage firm in which he had a demat account. Despite the setback, he continues to invest in high-risk equity mutual funds (MFs) and his portfolio of equity funds consists of large cap, mid cap, diversified as well as equity-linked savings schemes (ELSS). He also has in his portfolio a liquid fund under the debt fund category and an close-ended international fund under the equity fund category.

For the last 3 to 5 years, with average CAGR of over 15 per cent, he was very happy with the overall performance of his domestic equity funds and even stopped his investments in the liquid fund. With a CAGR of around 7 to 9 per cent, he was also not so satisfied with the performance of the international fund, but couldn’t do anything as it was a close ended fund.

Then the table turned with broader Indian equity market starts performing poorly and he suddenly realised that the debt fund, in which he stopped investing, was the top performing fund with CAGR of slightly over 7 per cent, while most of the domestic equity funds were in red.

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After few months, the international fund, the portfolio of which consists of World’s top 30 companies of about 20 different sectors, became the top performer with consistent CAGR of around 9-10 per cent, while the domestic equity funds just started showing some positive returns, with 1-2 funds still in negative.

"If you have been tracking 1 year performances of mutual funds, you might have noticed a bizarre fact that 9 out of the top 10 schemes are all international funds. And if you think this might be due to recent movements in the indices, think again-even over a 2 year horizon, 5 out of the top 10 schemes are international mutual funds," said Sandip Raichura, CEO of Retail and Distribution, Prabhudas Lilladher Pvt Ltd.

After observing such trends, Das no more regrets investing in the international fund as the CAGR of 10 per cent looks attractive in the battered domestic equtity market.

Advising people to lap up international funds, Raichura said, "If you still haven't invested a part of your portfolio-about 5 per cent-in international funds, you might want to start doing that especially if you believe in a 3-5 year horizon for equity investing."

"Most people aren't doing this yet-international funds account for a mere 0.3 per cent of the total corpus in equity funds which is abysmally low," he added.

Explaining the functioning of international funds, Raichura said that an international fund/overseas fund invests in either in equity or debt or in other asset classes such as commodities, real estate, among others, in the international markets.

"In addition to creating opportunity to invest globally, these funds help individuals achieve geographical diversification and at times serve as a hedge against the falling domestic currency," said Raichura.

Highlighting investment avenues, he explained that international funds may invest directly in international stocks or in international indices such as the Nasdaq, the S&P 500 or through feeder funds or in units of international funds.

However, equity investments are subject to market risks, so while investing in International funds, the investors must be aware that they are exposed to country-specific risks, currency risk, geo-political risk, etc, cautioned Raichura.

Pointing out that international funds are generally more expensive than domestic equity funds, Raichura also said, "You need to keep an eye on the total expenses while investing in these funds."