Investments in International Funds have left many investors worrisome. In the last year, categorical average returns were around -17%. Some of the schemes have witnessed good investment flows during the recent bloodbath in global markets.
Funds of Funds such as Invesco Global Consumer trends lost about 43% within the last year. PGIM India Emerging markets equity funds lost around 38%. Even Edelweiss US Technology Equity FoF lost 34%. These were amongst the least performing International funds schemes.
No wonder a lot of investors are flummoxed as to what exactly is happening overseas with these funds. Many investors also want to know the prospects of these schemes and their potential to figure out what to do with their Investments.
- International Mutual Funds make use of a lot of avenues to invest. One scheme may invest in global consumer trends while the other might make use of US Technology Schemes or invest in China. To figure out what went wrong you would need to dig really deep into what exactly went wrong with your scheme. This might seem like a task but you can very broadly understand the pain point of your category.
- Inflation and interest rate hikes are causing a lot of trouble for many major global economies. Even with countries having really low inflation historically, they find themselves maimed by all-time high inflation.
- To counter the inflation majority of the central banks are going steep on the interest rates. Even though the intent is to stabilize the economy it could very well result in a recession. Developed countries will remain under pressure until the further course of economies is figured out.
Also, recently SEBI allowed MFs to accept fresh stock of money into Schemes investing in international stocks. This allowance falls within the industry-wide limit of $7 billion. This enabled some fund houses to reopen their oversea investment schemes.
In early February this year, SEBI directed the fund houses to temporarily pause investment into international stocks as the stipulated limit of $7 billion was near its breach. This subjugated the funds to stop accepting payments from the investors in both ways- lump sum and SIPs.
Even though the limit now has not been enhanced and the ceiling still remains the same, there are a few minor changes. SEBI permitted Mutual Fund Schemes to resume the subscription and allow investments to be made in overseas funds or securities, but selectively. Fund houses can collect fresh subscriptions depending upon the headroom available to them without breaching the upper limit.
As of 1st February 2022.
Time from February till now has been of considerable correction in Global equity markets, such as Russia-Ukraine War, all these events pushed the investors to redeem units, which in turn made fund houses sell the respective holdings and to pay the investors. SEBI thus clarified that the fund houses can make use of the headroom available in the overseas limited which came into existence due to the redemptions.
There are about three types of Mutual Fund Schemes:
- First type is where there is a mix of domestic and overseas stocks. These schemes were not paused and they were open throughout this time. But in the interim, they did not buy overseas equities. If these schemes sold off their overseas stocks, it cleared a bit of room to ease up the headroom for limits. These schemes can invest your money abroad.
- Second type were the schemes which bought ETF units overseas. These schemes had a separate billion-dollar limit which was not breached, these would continue accepting fresh inflows
- Third were the schemes which invested in overseas equity or mutual fund units. These have not accepted money since February 1st, 2022, but they have recently announced that they will continue to accept fresh inflows.
The current sell-offs across global equity markets can be an excellent opportunity to invest in equities. Being able to invest in overseas equities gives your exposure to new opportunities which may not be available in domestic markets. International equities have an asymmetrical risk profile that emphasizes their growth.
With a looming threat of recession, here are certain rules we need to follow to stay afloat during a recession:
1) Do Not Panic
During a recession, most investors have a knee-jerk reaction which leads to the selling of investments, when the markets fall. This should be avoided as we may miss out on a huge recovery of the investments that we bought.
The current Geo-political uncertainties amplify the market volatility in upcoming days, so the focus here should be on the long-term goals, as to wait out the inevitable bumps in the Global markets.
2) Diversify to spread the risk
Diversification is the holy grail of any investment strategy. Along with your international funds, you can also hold a mix of cash and Fixed income assets. Spreading these assets across the global markets so that turmoil in one area does not affect your entire portfolio. In order to do this, you should be comfortable with your risk profile, in pursuit of higher returns you should not take exposure to additional risk.
3) Save and drip-feed your money into the markets.
It is almost impossible to time the markets, and so is to anticipate the right price and price movement.
It gets much harder, especially when the investors are taken over by fear leading to increased volatility. Instead, we should save regularly as a habit and drip-feed the money regularly into the markets.
If we take another look we can find and pick up high-quality assets at a discounted price, as businesses globally. These times call for immense patience since Difficult Environments are often the best times to find good opportunities which may pay off quite well when markets recover. We should take a look at companies that maintain a steady business model and complement it and have a strong balance sheet during the recession.
We at Rurash constantly scout through the market for opportunities which are available at a discount to bring to you, so that you may be able to keep your portfolio in the green even during difficult times.
RURASH is one of India’s investment management firms, providing financial solutions to augment the client’s wealth and facilitate building a legacy.