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Choose Foreign Funds For Portfolio Diversification

| 7/12/2012 9:00 PM Thursday


Q1: I am a long-term investor with an investment horizon of more than five years. At present, all my investments are in mutual funds that invest in Indian equity. Should I invest in mutual funds that invest in the international markets? Kindly advise me as to what value addition I can expect by investing in foreign funds.

- Devesh Jaitak

A: In recent times, there has been increased focus on foreign funds due to their significant outperformance as compared to domestic funds. Of course, the excitement is also due, in part, to the underperformance of our domestic equity and the depreciating rupee.

However, keeping the foreign exchange gains aside, there are definitely many reasons to invest in foreign funds. Major value additions to the portfolio would be from geographic/economic diversification and also by creating dollar assets. While there are not too many meaningful foreign funds available, one can look at funds that directly invest in foreign equity, for instance MOST Shares NASDAQ-100 ETF from Motilal Oswal as well as ICICI Prudential US Bluechip Equity Fund.

There are also emerging market equity funds available for investment. Though these provide geographic diversification, one may find a high correlation with Indian equities.

 

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