Do Indian investors still have a need for foreign mutual funds? merely save

 Do Indian investors still have a need for foreign mutual funds? merely save

Over the previous 20 months, the assets under management of mutual funds that participate in international markets have decreased. Even the average returns for the long term category are insignificant in compared to others in the debt funds category. Are global funds still a useful tool for portfolio diversification and what is wrong with them? Chintan Haria, head of investment strategy at ICICI Prudential Mutual Fund, provided the information to Moneycontrol.

Due to the muted returns provided by the world's stock markets, a limit on mutual funds' ability to invest abroad, and changes in tax laws, subscriptions to foreign mutual funds have decreased during the previous two years

The decline in demand is especially noticeable since it follows the extraordinary increase that foreign mutual funds experienced beginning in January 2020.

According to data from ACE MF, a mutual fund research tool, there were 33 foreign funds available in the Indian market at the final day of January 2020, with a total assets under management, also known as of Rs 7,598 crore. By the end of September 2023, however, there were 66 funds, with an AUM of Rs 47,850 crore, an increase of more than six times.

However, the first 24 months of this era saw the most of this increase. At the end of December 2021, the AUM of these funds was Rs 48,278 crore. In addition, only 10 funds were introduced between January 2022 and September 2023.

This demonstrates that from around January 2022, mutual funds that invest in foreign funds have run against a brick wall.

While foreign mutual funds have performed poorly over the longer term, they have gained 22% during the last year until the end of September, according to the returns chart. These funds' returns over a three-year period have been 5%, but their 10-year returns have been 6%, which is less than some of the debt funds.

What went wrong with foreign mutual funds, and should they still be included in the portfolio of Indian investors? Chintan Haria, head of investment strategy at ICICI Prudential Asset Management Company, provided the information to Moneycontrol. I'll summarize what Haria stated here.

Two to three years ago, international funds began to get more attention as the Nasdaq 100, the US technology-led index, performed very well. FAANG stocks—Facebook, now known as Meta, Apple, Amazon, Netflix, and Google, now known as Alphabet—became well-known. However, because to the downturn after 2022 and the meager returns on these funds, there is less interest in them. The maximum of $7 billion on foreign investments was reached in January 2022, which is more significant from the perspective of an Indian mutual fund.

The mutual fund industry's $7 billion ceiling was reached in the two years between 2021 and 2022 due to $3 to $4 billion in investments by Indian investors into foreign schemes. As a result, new inflows into overseas funds had to stop.

There is uncertainty and a downturn in the economy in both Europe and the US as a result of the substantial increase in interest rates in 2022 and 2023. China is also slowing down, which is expected given that its population reached its high a year ago. India seems to be a bright light in a globe that is ostensibly slowing down.

In advanced countries like the US and Europe, the GDP growth has not been especially significant. As a result, returns during the last 10–12 years have not been all that impressive. China has had a recession over the last five years and is presently experiencing stagflation. Therefore, the economy's poor performance or sluggish GDP growth are the main causes of the returns' poor appearance during the last ten years.

Future GDP growth in developed countries could not be very robust. Returns from such economies hence could not be all that substantial.

Between 2000 and 2010, developing markets flourished, including those in China, India, South Korea, and Taiwan, among others. In contrast, developed markets profited well from 2010 to 2020 as a result of sharply declining interest rates and the success of their respective markets. Our opinion is that the decade of rising markets should once again span from 2020 to 2030.

In other words, compared to Europe and the US, investors are better off in Asia and developing countries, with India having one of the strongest economies.

Gold and international investing are choices for investors who want to diversify their holdings outside of India since this country accounts for a significant portion of their enterprises and assets.