Global mutual funds put up a mixed show

Global mutual funds offered to Indian investors are touted as a tool to spread the risk of investment and to benefit from any upturn the global markets may witness when the Indian equity markets may be down. The great attraction of global funds is that they offer an opportunity to own, albeit indirectly through the MFs, great shares such as GE, Microsoft, JP Morgan, Wal-Mart etc., to name just a few.

With many of the global funds in India being commodity-related, particularly investing in gold and gold mining companies, the dream of owning international blue chips is not served by all. Except a few global funds now in India, others suffer from a very low corpus despite the fact that they have been in existence for a while now. Another factor to be borne in mind is that some of the most formidable players in the MF space – HDFC MF and Reliance MF – have stayed away from this product.

Of the 28 global funds, only three (as per Value Research data) have offered returns over one year period that are in double digits. While 10 others have shown sub-10 per cent returns over one year, 11 have offered negative returns during this period. Data relating to four other schemes were not available for the minimum one-year period since they have not completed one year since launch.

According to the data available with Value Research, the best returns offered by international funds over a three year (as on Sept 15) period was by AIG World Gold that gave a return of 33.83 per cent followed by DSPBR World Gold Regular that gave a yield of 28.85 per cent. The rest of the eight international funds that figured among the top 10 funds gave returns ranging from -0.48 per cent (HSBC Emerging Markets) to 9.47 per cent (by Franklin Asian Equity), by no means an impressive show.

But none of the Indian mutual funds figuring among the top 10 funds for a three-year period ending on Sept 16 (as per MutualFundsIndia.com, an ICRA affiliate, data) gave a return that was less than 20 per cent. The topper was the IDFC Small & Midcap Equity Fund (Growth) that has given a return of 28.11 per cent and DSPBR Micro Cap Fund-Regular (G) that was at the bottom (10th place) has given a return of 21.23 per cent.

Indian gold etfs

Even the Indian Gold ETFs (open ended) have given stellar returns over a one year and three year period to beat their international counterparts. But the best return by a global gold-related fund over a one year period was by AIG World Gold with a yield of 19.12 per cent (as on Sept 15) and the next best was DSPBR World Gold Regular that offered a yield of 16.33 per cent (as on Sept 16, as per Value Research). In fact it was the global gold funds and not global equity funds that are among the toppers among global funds during this period! This is reflected in the performance of diversified Indian equity funds over one year as well with most of them in the red, confirming the volatility the markets have been witnessing for a year now.

Apart from the performance of the funds, other issues that investors should remember are the high expense ratio and the currency exchange rate risk. According to Value Research, of the 28 global funds open to Indian investors, 7 funds have an expense ratio of the maximum of 2.5 per cent and two others miss it by a fraction.

Expense ratio is what investors pay a fund in percentage terms every year for management of their investment including management fees, agent commission, fees to registrars and marketing expenses. This has a significant bearing when the fund size is large and the net return is impacted by the fee levied.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article2468169.ece