In an interview to CNBC-TV18, Feroze Azeez of Anand Rathi Private Wealth Management discussed about the new categories of mutual fund (MF) investments and how retail investors can benefit from it.
Below is a verbatim transcript of the interview:
Q: Can you take us through the new categories of mutual fund (MF) investments that have come up and what is the scope of gains for retail investors from these new categories of MFs?
A: There are about 4-5 new categories, which are emerging over the last couple of months. One of them is the global feeder funds. It is not a very new category but it is now gaining flavour and should be a part of all asset allocation, which a person does be it retail, high networth (HNI) or a corporate from an asset allocation perspective. These are the global feeder funds.
Basically, they collect the money from a domestic market from any sources, convert them into dollar and then invest in a already existing global fund, which is a large fund managed by very experienced fund managers. That is what it does.
The advantages are numerous for a retail investor especially. In this kind of an economic situation where equities have not performed, it is a very good answer, at least it answers a portion of it.
The advantage is the diversification. Retail investor can invest Rs 2,000 and have his money - USD 38-40, which get bought - invested in 100 different stocks in two-three different nations, which is like diversification personified to my mind.
Indian equities are always not going to be on the top. If you look at the last one year, we are ranked 28th. When you look at the rest of the indices, even a developed market like Japan can sometimes surprise us. So having an exposure for a retail investor when it is so affordable makes sense.
Q: Can you name some of the funds?
A: Yes. I would like a retail investor, who is starting up, to start with a developed country's fund especially the US based fund, which is the largest stock exchange in the world. Franklin US Opportunities Fund has been there for about six years. There is a feeder fund called the Franklin Templeton Feeder Fund into the US Opportunities Fund that is a good one and ICICI US Opportunities Fund. These should be the good start points for a retail investor.
There is one very big other advantage, which is in a person’s life there are some of his goals which sometimes are not rupee dependent and are sometimes dollar dependent like sending your kid abroad for education. You might have to have some dollar exposure in your portfolio to meet that requirement. So, it is very important for somebody to take an exposure into global feeder fund.
Q: What is the interest that has been generated already via these feeder funds in terms of retail participation and how much has been the average return which investors have generated over a span of a year maybe two-five years and what sort of longevity would you be recommending as well?
A: Yes, certainly. There are two portions. One is the return. There are about 36 funds already but ironically there has not been too much of retail participation for the lack of awareness maybe. That is one thing, which is ironical but yes, that is the fact.
Coming to the second portion of your question is that these funds have generated good returns over the last one and a half years vis-à-vis the domestic equity market. The fund, which I just mentioned, has delivered almost about 20-22 percent return over the last one year investing in US stocks as you would know the US indices have moved up over the last one year.
Having said that, it is very important for an investor to keep in mind that these are funds offshores. So the return expectations would have to be tapered marginally because they are not a return spinner, they are more of a risk mitigation to a portfolio.
Q: Can you give a word about the other two MF categories you are recommending?
A: One of them answers a very important question of if interest rates go down, what does a retail investor do. He has to lock-in his interest for longest periods of time. Fixed Deposit (FD) could probably lock it for five years but there are some funds, which can lock-in his interest for ten odd years like a JP Morgan Income Fund, which holds to maturity. So in a falling interest rate, you can lock your interest for ten years, which is a long period.
The other one would be more of a credit opportunity where in the falling interest rate you would want to take marginal credit risk to get that 2 percent more per annum, which over long periods for our portfolio become significantly high.