Mutual Funds
JP Morgan & Baroda Pioneer continue to bet on foreign shores with new fund offerings

JP Morgan and Baroda Pioneer are launching foreign fund schemes. But why are these foreign fund schemes flooding the Indian market, even as Indian savers are shunning the equity products of their own country?

JP Morgan has again filed an offer document to launched a new foreign fund, JPMorgan Global Financials Equity Off-shore Fund, an open-ended fund of funds (FoF). The primary investment objective of the scheme is to provide 'long-term capital growth' by investing predominantly in JPMorgan Investment Funds-Global Financials Fund, an equity fund which invests primarily in companies from the financial, banking, insurance and property sectors, globally.

The scheme will invest 80%-100% in Morgan Stanley Capital International (MSCI) World Financials Index USD (Total Return Net) with high risk profile and it would invest up to 20% in Morgan Stanley Capital International (MSCI) World Financials Index USD (Total Return Net) with low risk profile.

The scheme will be benchmarked against Morgan Stanley Capital International (MSCI) World Financials Index USD (Total Return Net) and Namdev Chougule will be the fund manager of the scheme.

JP Morgan, whose performance in India is poor, wants to launch a Global Financials Equity Off-shore Fund—that too a scheme which will invest in particular sectors only, such as financial, banking, insurance and property sectors. What do we know about these sectors globally? One fact is clear—the global property sector is already in the dumps now. And above all, it's not clear whether Indians who do not invest in Indian funds for Indian stocks would be keen to invest in funds meant for overseas markets. But a number of fund houses have now planned to raise money to invest in overseas securities.

JP Morgan has already launched a number of offshore funds like JP Morgan America Large Cap Equity Off-shore Fund—which will invest in large blue-chip US companies. JP Morgan ASEAN Equity Offshore Fund will invest in ASEAN countries; JP Morgan Global Natural Resources Fund will invest primarily in natural resources companies globally, many of which are in the early stages of exploration.

It has almost become a fad. Baroda Pioneer Mutual Fund has also filed an offer document with SEBI to launch the Baroda Pioneer Global Equity-Gold & Mining Fund, an open-ended overseas FoF scheme investing in international funds. The investment objective of the scheme is to achieve 'capital appreciation' by investing predominantly in the units of Pioneer Funds-Gold & Mining Fund. The scheme may also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. It could invest a certain portion of its corpus in money market securities and/or units of money market/liquid schemes of Baroda Pioneer Mutual Fund, in order to meet liquidity requirements from time to time.

This scheme would allocate 65% to 100% of assets in units of Pioneer Funds-Gold & Mining Fund, or other similar overseas mutual fund scheme(s) with high risk profile. On the other side, it would allocate up to 35% of assets in money market securities and/or units of money market/liquid schemes of Baroda Pioneer Mutual Fund with low- to medium-risk profile

Its benchmark index will be the MSCI World Metals & Mining Index; the fund will be managed by Uzair Pradhan.

But there have been many releases of such foreign funds. Deutsche Mutual Fund had announced the launch of its DWS Gold and Precious Metal Offshore fund. This will invest predominantly in units of DWS Invest Gold & Precious Metals Equities Fund. DSP Blackrock World Gold Fund invests in a portfolio of gold & precious metal producers from around the world. DSP BlackRock had recently filed an offer document with the Securities and Exchange Board of India (SEBI) to launch four global funds—DSP BlackRock Latin American Fund, DSP BlackRock World Agriculture Fund, DSP BlackRock New Energy and DSP BlackRock China Fund. All four are open-ended FoF schemes investing in units of their respective international BlackRock Fund.

HSBC Brazil Equity Fund, another FoF, recently announced that it plans to channel its corpus into HGIF Brazil Equity Fund, managed by HSBC Global Investment Funds (HGIF). Deutsche Mutual Fund has announced the launch of DWS Gold and Precious Metal Offshore Fund which will invest in DWS Invest Gold & Precious Metals Equities Fund—benchmarked against the S&P BMI Global Gold and Precious Metals Index.

Franklin Templeton launched two foreign funds, FT India Feeder-Franklin US Opportunities Fund which seeks to provide capital appreciation by investing in overseas mutual funds/unit trusts that primarily invest in US securities; FT India Feeder-Templeton Asian Growth Fund which will invest in overseas mutual funds/unit trusts that primarily invest in securities in Asia.

Loose global monetary regimes across the globe had attracted foreigners to the Indian equity markets, and this 'hot' money had fuelled Indian indices. But Indian savers are avoiding Indian equities, despite the enormous value that Indian stocks have created over the past two decades. This has resulted in dwindling retail participation of Indians in domestic markets. Shouldn't Indian fund houses try to tap Indian savings for Indian schemes? That's not the case—many mutual funds promoted by foreign fund companies are furiously bringing in foreign funds into India to channelize Indian savings into overseas equities.

Global funds do offer diversification benefits by investing in stocks like biotech, technology, energy, agriculture and mining, which an Indian investor may not be able to buy by investing only in domestic schemes. But funds that put your money in other countries don't necessarily offer another round of diversification.

Markets in countries around the world have been moving in sync. During April 2010-March 2011, the Sensex was up 10% while the MSCI Emerging Markets Index was up 14%. Non-correlated market movement is not easy to find. That apart, you are exposed to risks unique to different countries and sectors that you know nothing about. Choose very carefully before sinking your money in these 'foreign' funds.

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