For a slice of the US market
Mutual funds have been coming up with new products and strategies to combat the domestic economic slowdown. One such idea cultivated in the last two years is investing in US equities.
Thanks to the robust U.S market over the above period and the dollar’s gain against the rupee, domestic funds that invested in U.S stocks/ETFs have made a colourful start. For instance, the Motilal Oswal’s MOSt Shares NASDAQ 100 ETF (MOSt NASDAQ 100) delivered 22 per cent since its launch in March 2011. That is far superior to the 6 per cent average return of diversified domestic funds over the same period. In fact, only one diversified fund Magnum Emerging Businesses bettered MOST Nasdaq ETF’s return.
FT India Feeder Franklin U.S Opportunities, a fund that invests Indian assets in its parent U.S fund, and ICICI Prudential U.S Bluechip Equity were the two others that joined the bandwagon in 2012.
All of these three invest in US equities but through different routes. MOSt ETF simply invests in the stocks of Nasdaq-100 a tech-heavy US index. It is therefore a passive fund. FT India Feeder invests in its parent’s US fund that has been in existence since 2000. This fund, benchmarked against the Russell 3000 Growth index, has a growth orientation. ICICI Pru, on the other hand, invests directly in U.S equities and is benchmarked against the S&P 500.
Should you invest in these funds? Read on to decide.
What the US can offer
While Indian and other emerging markets are likely to deliver superior returns in the long term, there are advantages of investing in markets such as the U.S. For one, the US offers a wider gamut of stocks and sectors that are not too often available in the Indian markets.
Stocks in sectors such as commodity, agriculture, chemicals, industrials and true-blue technology are limited in the Indian context. It is unlikely that you will get to invest in a technology company like Apple Inc. or a financial play such as Berkshire Hathaway.
Two, with limited liquidity in domestic small and mid-cap stocks, funds are often constrained from taking bets to make big gains, for fear of getting trapped. The depth and liquidity in the US markets allow funds to do this without much constraint.
Three, quite a few multinational companies listed in India trade at premium valuations. The same company’s parent can be found in the US market, often trading at more reasonable valuations, although factoring earnings from emerging markets such as India or China.
With companies in the S&P 500 index said to derive almost one-half of their revenue outside the US, their earnings stream also appear far more diversified.
Four, the last five years have proved that even developed markets can rally at a fast pace and are in fact more resilient in a phase of prolonged volatility. The Nasdaq 100 returned 4.7 per cent compounded annually in the last five years, as against the flat or negative returns in key Indian benchmark indices.
Limitations
That said there are a few flip sides to investing in foreign markets. One, it is impacted by currency movements. The rupee’s depreciation against the dollar helped the performance of many international funds in the last 1-2 years. For instance, the MOSt Nasdaq 100 ETF delivered 22 per cent in the last one year, at least 3 percentage points more than the index itself. But a gain in the rupee against the dollar can also hurt returns.
Two, currently, US stocks are themselves not particularly cheap. For instance, the Russell 3000 Growth index, an index of growth stocks in the US, has a trailing price earnings ratio of 18 times. That’s about the valuation of BSE 500 index.
Three, investors need to choose the right fund in India to invest in. Actively managed funds have a higher expense ratio than passive ETFs or feeder funds. Also, international funds are treated like debt funds for tax purpose and hence subject to capital gains tax.
Four, investors need to be savvy enough to identify funds that will fill the gap in the Indian market. For instance, cyclical sectors such as banking may provide high returns in the Indian context than abroad, while technology companies may be a better bet outside India.
If you are game for this, then you can expose a small part of your portfolio in US funds, just for the sake of diversification. Active profit booking strategy must be part of such a strategy.
For the rest, Indian markets do offer sufficient opportunities if you are invested for the long term.
Currently, the three US funds are loaded with stocks in technology, industrials, financial services and consumer discretionary sectors. See table for these fund’s returns in their limited track record.
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How are these US-focussed funds taxed ? — as equity funds (since they invest in equity, although not Indian equity) ? or as debt funds ?
Amit, Any fund that invests 65 per cent or more in Indian securities will only receive ‘equity fund’ status for tax purpose. Since the funds discussed by us invest primarily abroad, they will only be treated like debt fund for tax purpose (although they invest in equities). Some international funds like Templeton India Equity Income (invest in asian markets), invest only up to 35 per cent of assets abroad and rest in India. hence, they are treated as equity fund for tax purpose. – Vidya
How are these US-focussed funds taxed ? — as equity funds (since they invest in equity, although not Indian equity) ? or as debt funds ?
Amit, Any fund that invests 65 per cent or more in Indian securities will only receive ‘equity fund’ status for tax purpose. Since the funds discussed by us invest primarily abroad, they will only be treated like debt fund for tax purpose (although they invest in equities). Some international funds like Templeton India Equity Income (invest in asian markets), invest only up to 35 per cent of assets abroad and rest in India. hence, they are treated as equity fund for tax purpose. – Vidya
If I compare the returns of ASEAN based, or Emerging markets’ funds with US based funds, there would be 10% or more difference, with the former category being the winner. With most of the FIIs preferring emrerging markets over US markets which is more mature and predictable, do you still see a need to invest in US funds, for any reason other than geographical diversification?
Vivek, as mentioned in the article, emerging markets will likely deliver superior return in the long run. But none of the EM pack are likely to have the depth and breadth of market like the US. Also, the Em-focused funds are not going to behave too differently from the performance of funds invested in India. In that sense, diversification, in terms of risk may not be high. Also the US market was more resilient in a downturn compared with EMs. Whether there is a case for investing in US-based funds would depend on your own need for diversification and ability to spot opportunities. You can well do without these funds in a core wealth building portfolio.
You have mentioned in the article: “Actively managed funds have a higher expense ratio than passive ETFs or feeder funds”
How is it possible that actively managed funds have higher expense ratio than that of feeder funds? As per the norms, the expense ratio of feeder fund would be certain percentage over and above the actual Global fund, and this global fund is not under the jurisdiction of SEBI, to restrict the expenses. Can you please explain with an example say the Franklin Templeton in case you have data on the global fund. For ex, the expense ratio of FT India Feeder fund is 1.53%; I dont have data on the global fund’s expense ratio.
However the fund which directly invests would be capped to charge upto 2.5%. Does the same apply to Global fund too(I am not referring to the feeder fund)?
Vivek, that’s a valid question. To answer it in parts, ETFs will have lower expense ratio as they are nor actively managed. As for feeder funds, yes, India will not have control over the expense of the foreign fund. But the total expense ratio (including the underlying scheme) for the feeder fund in India is capped at 2.5%. Anything over this has to be observed by then Indian AMC and not passed on to customers. So the rule is the same as for funds that invest directly.
You are right that funds do not often declare the global fund’s expense in the fact sheet. It is made available in their scheme information document and KIM. According to FT India Feeder US Opportunities scheme document, the foreign fund had a recurring ratio of 1.2 per cent. But what needs to be noted is that in the case of feeder funds the foreign fund is already in existence and may well have a large asset size thus helping reduce expense ratio. Hence chances are that their expense ratio is lower. For instance, Mirae Asset China Advantage invests in a parent fund. The latter had a expense ratio of just 0.5 per cent.
I need to know how ICICI Pru US Bluechip Fund is taxed?
Subhadip, it is taxed like a debt fund for capital gains purpose. – Vidya
Res madam,
First of all, thanks for publish such unvalueable articles , where as there are many fin compenies , persons who demand large amount against even single advice/tip. with your help , i maintain my mf portfolio , otherwise my portfolio runing in zigzag according to market news.
hereby , i wish to invest in RAJIV GANDHI SS, which company should i select for invest (DSP/UTI etc)i could hold it for 5-7 years. thank you in advance.
With regards,
harpreet singh
9814750007
singhhbedi@yahoo.com
Hi Harpreet, Thanks. We are happy to help.
Pl. ensure that you are eligible to invest in RGESS. We hope you are not an investor who has a demat account and are already investing in shares. Such investors will not be eligible for RGESS. The following FAQ by the Ministry of Finance will answer the eligibility criteria and any other queries you may have on REGESS: http://www.cdslindia.com/faq/FAQ_RGESS.pdf.
A number of fund houses have sought approval from SEBI for RGESS schemes they intend to float. You may either wait for those or consider few established ones such as Kotak Sensex ETF, Quantum Index Fund – ETF or Goldman Sachs Nifty BEES. Since, they aare passive modes of investment (ETFs), their returns are not significantly different from the indices. The above-mentioned ones have liquidity to support your buy/sell transactions. Hence you may consider those.- Vidya
Do you suggest investing in international us funds or non-us international funds. My horizon is say 10-15 years. Please suggest some funds. Should I invest in one of the above mentioned funds or go with Birla Sunlife International Equity?
Hello Rahul,
There can be no single response to your query. Different markets hold opportunities at different points. While the US market did well last couple of years, ASEAN markets picked pace in recent times. You should be willing to track international markets to participate in these funds.
We are neutral to investor’s exposure to intl. mkts. Investors may do so for diversification purposes. But there is no point going for a general equity, unless it can give you something different from what the Indian market offers. Something like L&T’s Global Real Assets or MOSt Nasdaq 100 ETF or JP Morgan ASEAN Equity or a value fund like Templeton India Equity Income (with only 35% in foreign equities) may be better options. But if your time horizon is 10-15 years, pl know that Indian markets and therefore Indian funds may well do better. Hence it is important for you to track these foreign funds and book profit once you make some returns.
Tks, Vidya
What do you think about the following funds: Birla Sunlife International Equity and DSP World Energy Fund or Mining Fund. Are these risky bets for long term?
Hi Rahul, the former is a diversified international equity fund and we do not expect it to beat Indian funds in the long term. We have already discussed the energy and mining space. tks, Vidya
hi vidya,
i have a demat account but i never invested in bought any share , i just invested in mutual funds. Am i eligible for Rgess??
(invested or bought)*
Hi Manish, My understanding is that there should have been no transaction in the demat account. If you had bought MFs already through demat account, then you may not be eligible. But if you bought MFs outside your demat account and the demat remains fresh, then you are eligible.Thanks, Vidya
Hello Vidya , I wanted to invest in FT India Feeder Franklyn US Oppotuniteis Fund , But Fundsindia platform does not have this fund listed on it ? Any other Fund you recommond that invests in US markets ?
Hi Ivian, Kindly look for the fund name http://www.fundsindia.com/products/mutual-fund/scheme/FT-India-Feeder—Franklin-U.S.-Opportunities-Fund-G-?c=16071 when you search it in your list. It will appear under equity classification.
Vidya
Vidya , I want to set up a monthly VTP on this fund. Can you suggest a debt fund to pull in funds from please.
Thanks,
Vivian
Helo Vivian, I suppose you meant an STP (or you want to value average it using VTP?). Be a little careful while doing value averaging on foreign focused funds. Because there are 2 variables at play with a foreign fund: one the performance of the underlying fund (of course based on the foreign market) and the movement of the dollar against the rupee. The currency movement may trigger you to buy less or more of the fund in a VTP, even if performance remains constant or actually becomes lack lustre.
With franklin, you may go for Franklin India Treasury Management for the liquid fund from which to initiate a transfer.
In future, request you to kindly use the ‘Ask advisor’ forum in your account (click help tab to see this) for fund/portfolio queries to enable us to track your queries and respond systematically. The blog may be used for more knowledge-sharing/seeking queries. Many tks, Vidya
Hi Vidya
First of all, I laud you for having an active dialog with your readers here, by replying to all comments even months after publishing the article. I came here through googling as this webpage showed up in top 10 results. Have few questions, and appreciate your responses to them:
(1) I dont know if I am late to the party that these funds had over last 1 year. Rupee slid to 60 already. If I want to invest now in FT feeder fund, MOST Nasdaq fund, Birla Intl Equity fund etc., would I expect lesser than 30x returns that all these funds gave last year? I know its hard to answer this futuristic question, but keeping in light actions that RBI is taking recently to control Rupee-Dollar equation, lets say that rupee bounces back to 55 levels. How much would that affect the performance of these funds? In other words, what is weightage of $-Re equation in the fund performance?
(2) I am planning to invest in MOST Nasdaq, BSL Intl Equity, Franklin Feeder and JP Morgan ASEAN as lumpsum, All of these are near 52-week highs though. Would you suggest investing in these 4 funds and is lumpsum a good idea? Some of them haven’t declared exit load criteria. Do you know where can I find them or do you happen to know them as of date?
Many thanks Vidya.
Hello Mitesh,
thank you for writing in.
1. You may expect lesser return from intl. funds as the currency effect may not be as significant as last year. That said, the rupee is unlikely to jump to Rs 55 levels in the near term and hence a drastic fall due to rupee is unlikely within the next 6 months. An 8% fall in rupee year to date caused about 10% higher returns in rupee terms of the Nasdaq 100 ETF. that many give you an idea of how much returns can swing when they reverse.
2. Portfolio recommendations/suggestions is normally done through the ‘Ask Advisor’ feature available in one’s FundsIndia account. This is available for all FundsIndia investors free of cost. All investment details too is available in the account.
Thanks
Hi,
Isn’t it a better option to simply buy foreign ETFs? So one could simply buy the Vanguard Value Index (VTV). ishares Russell 1000 Value ETF (IWD) is also available. Expense ratio is very, very attractive. It is not that difficult to open an account to trade in US / International exchanges. E-trade & Interactive brokers are offering this facility.
Hello Aditya, First, not many MF investors have a demat account. Second, most local brokerages require a hefty deposit as high as Rs 5 lakh for a foreign brokerage account. Three, most of them provide access to only selective international stock markets/stock exchanges and not a wide range. If these can be overcome (if you are a savvy equity investor), then going intl. directly is a good option. Tks, Vidya
Hi, thanks for the reply. Assuming that the points raised can be overcome, what would be the tax treatment of direct equity holdings abroad? What about 2yr bonds (maturity > 1 yr) held abroad?
Hi Aditya, they will be treated like debt for capital gains tax purpose. Tks, Vidya
Hi Vidya,
As you said, these US focussed funds are treated as debt funds in India. But I couldnt find in your article and in comments section, in which category (liquid, ultra short term, short term, long term) these debt funds lie. my reason for asking these is just to find out for how many months I should be invested if I plan to do so.
I beleive these are invested in Us equities (unlike Indian debt funds portfolios) so this kind of categorization doesnt exist. Its just that I need to follow it and try to avoid exit load charges while redeeming.
Regards
Amit
Hello Amit, international funds are categorised as debt funds for tax purposes alone. That has nothing to do with exit load. Exit load is determined by individual funds.
For capital gains tax purpose, if held for less than 1 year, it will be taxed at your slab rate. If held for more than 1 year, tax would be 10% without indexation and 20% with indexation.
As for exit load: for investments redeemed within 3 months exit load is 3%. if redeemed between 3 to 18 months load is 1% and beyond that there is no exit load. Hope this helps. Thanks.
HI
I want to invest in “FT India Feeder – Franklin U.S. Opportunities Fund”. So please some buddy can suggest will it be good. because i want to keep initially for short term(like one month) then i want to continue it for long term with SIP
Hello ajay, Intl. funds should be used as diversifiers. Besides, they are certainly not meant for the short term. the propsect of a US-focussed fund will hinge on that’s country’s equity fundmantals and also on the currency (a weak rupee gives higher gains..that is whay all US funds are looking up now). hence, if you have a long-term view and wish to add the fund as a diversifier (10-15% of total portfolio) then you may consider. thanks, Vidya
Hi vidya
Just read this post..thnks for being such a gem of an advisor for invsmnt dodos like me…my querry…for gulf based nris wud funds as icici us blue chip or ft us feeder be a longterm (10 yrs) sip alternative for diversified market exposure or shud v go invsting thru us etfs as vanguard fund as suggested by somebody else here?….for better returns and tax considerations??
Kindly advice
Rgds
Karthik
@karthik and any others who are considering US or Global ETFs:
1. You don’t need to have a demat account. Signing up for an international brokerage is easy. They sometimes require 10 lakhs opening balance, but you can get it back (check). Most middle class Indians put down that much for real estate without hesitation. Historically equities beat real estate.
2. Sign up with Interactive Brokers. Brokerage is 1$ a trade. Even if you trade 10,000$ or 100$.
3. You probably do not require expert guidance for developed market investments, because active investing doesn’t work there. 2 simple passive ETFs will expose you to the global economy:
VTI – Vanguard US ETF – expense ratio 0.05%
VEU – Vanguard Global Ex-US ETF – expense ratio 0.15%
As a general thumb rule, at least 20% of equity exposure ought to be international. Otherwise you’re too dependent on India & its policies. Dollar cost averaging is smart given that markets have run up. Staying invested as long as possible is also optimal as it is for all equity.
Doing research is easy. Use this: http://etfdb.com/. Google interesting tickers. You’ll get the hang of it within one or two weekends.
You can also try this link in the same website: http://etfdb.com/cheapest-etf-for-every-investment-objectives/
Only buy India based feeder funds if buying ETFs is not feasible for you. The expense ratios of Indian feeder funds will bleed the returns over the long-term.
@ Karthik, @aditya – Thanks Aditya for your inputs. They are very useful. I meant demat only if you are using some of the Indian brokerages that offer intl. equities. Rs 10 lakh is a big amount. Although you rightly said that many middle class Indians puts that money up for real estate, our interactions suggest that few Indian do that with equities. But being an NRI, Karthik may well 🙂
Just one point on the expense ratio, yes FoF expense ratio is high but remember that with the Indian currency having shown only a long-term depreciating trend against the dollar, the returns in Indian rupee (if one invests through Indian funds) may not be as terrible as you seem to suggest. Also, I am afraid, unless one is conversant with the US market, doing research, although there are enough resources may be highly time consuming and whether a lay investor who wants to put his money and relax can afford to do it is questionable. Thanks for the valuable inputs. It will certainly help investors who are serious abt. doing their own research and investing.
thanks, Vidya
Thanks a lot aditya and vidya.i was hoping to run a longterm sip prolly as a retirement corpus…but i hope as aditya suggests am able to diversify to us or global funds..(b/w..i thot i needed 2b a u.s permanent resident to invst in vanguard funds?!)…
And if i am able to do it…tht wud b gr8..!!:)..
And vidya..thnks again for being an invsmnt light house:)…thou… Being a gulf nri makes us rudder-less wr.r.t. the flambuoyant resident indian:);)
Wud keep u guys updated,
Cheers
Karthik
Just want to confirm that buying these mutual funds will not have any tax implications in respective countries? For instance, buying MOSt Shares NASDAQ 100 ETF will not incur any tax filing requirements in US, right?
Thanks,
Chitra
Hello Chitra, If you are a resident Indian, you do not incur any taxes outside India. It is local thanks, Vidya
Thanks Vidya!
I recently started investing in ICICI Prudential US Bluechip Equity Fund, which invests directly in US Stocks, and Franklin India Feeder US Opportunities Fund and JPMorgan Europe Dynamic Offshore Fund, which are feeder funds. All these funds are registered in India with the Sebi
Are investments in these funds regarded as foreign assets? Explain in detail
Please reply soon
Hello Amol, In future, if you are a FundsIndia account holder, please raise your query through your account so that it is quickly attended to. the blog is merely a public discussion forum and responses may be delayed. To answer your question, investments by Indian funds in equities abroad is treated as foreign equities. To this extent, their tax treatment is like debt. However, you do not have to disclose them as a foreign asset, if that is your question. This is my understanding on the latter. Please confirm with your auditor on such declaration issues. Vidya
Hi Vidya,
I am an existing investor in FundsIndia and am interested in investing in US based mutual funds. Would like to have a chat with you on this and have sent an email through the FundsIndia website also. Please call me when convenient.
Thanks
Thiagarajan
Hello Sir,
Thank you for writing to us. If you had sent the query through advisor appointment addressing me, it would come to me. Perhaps, it has been assigned to your advisor. Investor interactions and queries are usually handled by our advisors and they seek research inputs where required. I shall forward this to our research head and he will trace your query and seek our inputs accordingly.
thanks
Hi,
I am reqular investor in Mutual Fund houses, of late i want to invest in International Funds, i did some reading on the aritcle and decided to start a SIP with ICICI Prudential US Blue Chip-Growth for Rs 1000 from April 2016.
I read more about this MOSt Shares NASDAQ 100 ETF, i want to go for it.
what you is your take on it.
They said minimum investment should be 100000 units, what will be that in indian rupees.
Thanks
Hello Karthik, You can buy even one unit of ETF in the stock exchange. Only fesh creation of units may have restrictions. It is a good ETF with weight for tech. companies. But its valuation is considered very high. Be prepared for any sharp fall in it when there is any correction in US market.
Can you please guide about the Indian Equity Mutual Funds which are only listed outside india like ireland or luxembourg but invests in local indian equity market.
Hello Salman, there are Indian fund houses operating offshore funds but we would not have info about them as they do not fall within the Indian mutual fund ambit. thanks, Vidya
Hi Madam,
Very good briefing about US funds
I have bough stocks in MOSt Shares NASDAQ 100 ETF and for India focused reason, bought stock in HDFC Bank and Canara Bank.
From your good points, i like the fourth point very much
” banking may provide high returns in the Indian context than abroad, while technology companies may be a better bet outside India.”
My question here, MOSt Shares NASDAQ 100 ETF invest heavy in Tech and at same i have bough stocks in HDFC and Canara.
Is this combination fine.
Thanks
Karthik,
Sorry for the delayed response. I will be unable to comment on stock-specific views. Thanks, Vidya
Hi Vidya,
Can you name some top mutual funds which have good international exposure. One of them I know is PPFAS Long Term Value Fund.
Thanks,
Joydeep
Joydeep, If you mean India focused mutual funds (like PPFAS) with international exposure, the other one is Templeton India Equity Income. The others are all proper international funds with primary investments in international stocks. Vidya
Thanks for your reply. For investing in proper international fund, do we need to have Deemat and Trading account or we can purchase like normal mutual funds?
Hello, You can purchase like regular mutual funds. Vidya
hi madam.
i am a investor in indian markets, i would like to venture into us nasdaq 100 .MY need would be to invest a lumsum every year and withdraw 1% of invested money every month.. please guide me as to the tax implication, should i pay in us $ and file us returns.
Sorry for the delayed response. You will liable to tax in India for capital gains when you sell the stocks. Such gain will be similar to tax on debt instruments. I do not think you will be taxable in the US if you are a resident Indian. Please checked with a qualified auditor. thanks, Vidya
hi madam.
i am a investor in indian markets, i would like to venture into us nasdaq 100 .MY need would be to invest a lumsum every year and withdraw 1% of invested money every month.. please guide me as to the tax implication, should i pay in us $ and file us returns.
Sorry for the delayed response. You will liable to tax in India for capital gains when you sell the stocks. Such gain will be similar to tax on debt instruments. I do not think you will be taxable in the US if you are a resident Indian. Please checked with a qualified auditor. thanks, Vidya
Hi Vidya,
I am trying to understand how to measure the profit/loss from US Fund considering how much is $ worth in indian currently. Especially MOSt Shares NASDAQ 100 ETF – this one.
Currently 1 US dollar is some 68+ INR. After sometime if this equation changes say for example 1 US dollar is 50+ INR or lesser, then will there be depreciation of the returns value too?
Kindly suggest.
Thanks
Swapna Priya
When the rupee appreciates against the dollar (as illustrated by you) those who put their rupees in international funds will see a fall in their returns to the extent of currency appreciation of the rupee. If rupee depreciates against the dollar, they gain.
If I compare the returns of ASEAN based, or Emerging markets’ funds with US based funds, there would be 10% or more difference, with the former category being the winner. With most of the FIIs preferring emrerging markets over US markets which is more mature and predictable, do you still see a need to invest in US funds, for any reason other than geographical diversification?
Vivek, as mentioned in the article, emerging markets will likely deliver superior return in the long run. But none of the EM pack are likely to have the depth and breadth of market like the US. Also, the Em-focused funds are not going to behave too differently from the performance of funds invested in India. In that sense, diversification, in terms of risk may not be high. Also the US market was more resilient in a downturn compared with EMs. Whether there is a case for investing in US-based funds would depend on your own need for diversification and ability to spot opportunities. You can well do without these funds in a core wealth building portfolio.
You have mentioned in the article: “Actively managed funds have a higher expense ratio than passive ETFs or feeder funds”
How is it possible that actively managed funds have higher expense ratio than that of feeder funds? As per the norms, the expense ratio of feeder fund would be certain percentage over and above the actual Global fund, and this global fund is not under the jurisdiction of SEBI, to restrict the expenses. Can you please explain with an example say the Franklin Templeton in case you have data on the global fund. For ex, the expense ratio of FT India Feeder fund is 1.53%; I dont have data on the global fund’s expense ratio.
However the fund which directly invests would be capped to charge upto 2.5%. Does the same apply to Global fund too(I am not referring to the feeder fund)?
Vivek, that’s a valid question. To answer it in parts, ETFs will have lower expense ratio as they are nor actively managed. As for feeder funds, yes, India will not have control over the expense of the foreign fund. But the total expense ratio (including the underlying scheme) for the feeder fund in India is capped at 2.5%. Anything over this has to be observed by then Indian AMC and not passed on to customers. So the rule is the same as for funds that invest directly.
You are right that funds do not often declare the global fund’s expense in the fact sheet. It is made available in their scheme information document and KIM. According to FT India Feeder US Opportunities scheme document, the foreign fund had a recurring ratio of 1.2 per cent. But what needs to be noted is that in the case of feeder funds the foreign fund is already in existence and may well have a large asset size thus helping reduce expense ratio. Hence chances are that their expense ratio is lower. For instance, Mirae Asset China Advantage invests in a parent fund. The latter had a expense ratio of just 0.5 per cent.
hi vidya,
i have a demat account but i never invested in bought any share , i just invested in mutual funds. Am i eligible for Rgess??
(invested or bought)*
Hi Manish, My understanding is that there should have been no transaction in the demat account. If you had bought MFs already through demat account, then you may not be eligible. But if you bought MFs outside your demat account and the demat remains fresh, then you are eligible.Thanks, Vidya
What do you think about the following funds: Birla Sunlife International Equity and DSP World Energy Fund or Mining Fund. Are these risky bets for long term?
Hi Rahul, the former is a diversified international equity fund and we do not expect it to beat Indian funds in the long term. We have already discussed the energy and mining space. tks, Vidya
I need to know how ICICI Pru US Bluechip Fund is taxed?
Subhadip, it is taxed like a debt fund for capital gains purpose. – Vidya
Res madam,
First of all, thanks for publish such unvalueable articles , where as there are many fin compenies , persons who demand large amount against even single advice/tip. with your help , i maintain my mf portfolio , otherwise my portfolio runing in zigzag according to market news.
hereby , i wish to invest in RAJIV GANDHI SS, which company should i select for invest (DSP/UTI etc)i could hold it for 5-7 years. thank you in advance.
With regards,
harpreet singh
9814750007
singhhbedi@yahoo.com
Hi Harpreet, Thanks. We are happy to help.
Pl. ensure that you are eligible to invest in RGESS. We hope you are not an investor who has a demat account and are already investing in shares. Such investors will not be eligible for RGESS. The following FAQ by the Ministry of Finance will answer the eligibility criteria and any other queries you may have on REGESS: http://www.cdslindia.com/faq/FAQ_RGESS.pdf.
A number of fund houses have sought approval from SEBI for RGESS schemes they intend to float. You may either wait for those or consider few established ones such as Kotak Sensex ETF, Quantum Index Fund – ETF or Goldman Sachs Nifty BEES. Since, they aare passive modes of investment (ETFs), their returns are not significantly different from the indices. The above-mentioned ones have liquidity to support your buy/sell transactions. Hence you may consider those.- Vidya
Do you suggest investing in international us funds or non-us international funds. My horizon is say 10-15 years. Please suggest some funds. Should I invest in one of the above mentioned funds or go with Birla Sunlife International Equity?
Hello Rahul,
There can be no single response to your query. Different markets hold opportunities at different points. While the US market did well last couple of years, ASEAN markets picked pace in recent times. You should be willing to track international markets to participate in these funds.
We are neutral to investor’s exposure to intl. mkts. Investors may do so for diversification purposes. But there is no point going for a general equity, unless it can give you something different from what the Indian market offers. Something like L&T’s Global Real Assets or MOSt Nasdaq 100 ETF or JP Morgan ASEAN Equity or a value fund like Templeton India Equity Income (with only 35% in foreign equities) may be better options. But if your time horizon is 10-15 years, pl know that Indian markets and therefore Indian funds may well do better. Hence it is important for you to track these foreign funds and book profit once you make some returns.
Tks, Vidya
Hi Vidya
First of all, I laud you for having an active dialog with your readers here, by replying to all comments even months after publishing the article. I came here through googling as this webpage showed up in top 10 results. Have few questions, and appreciate your responses to them:
(1) I dont know if I am late to the party that these funds had over last 1 year. Rupee slid to 60 already. If I want to invest now in FT feeder fund, MOST Nasdaq fund, Birla Intl Equity fund etc., would I expect lesser than 30x returns that all these funds gave last year? I know its hard to answer this futuristic question, but keeping in light actions that RBI is taking recently to control Rupee-Dollar equation, lets say that rupee bounces back to 55 levels. How much would that affect the performance of these funds? In other words, what is weightage of $-Re equation in the fund performance?
(2) I am planning to invest in MOST Nasdaq, BSL Intl Equity, Franklin Feeder and JP Morgan ASEAN as lumpsum, All of these are near 52-week highs though. Would you suggest investing in these 4 funds and is lumpsum a good idea? Some of them haven’t declared exit load criteria. Do you know where can I find them or do you happen to know them as of date?
Many thanks Vidya.
Hello Mitesh,
thank you for writing in.
1. You may expect lesser return from intl. funds as the currency effect may not be as significant as last year. That said, the rupee is unlikely to jump to Rs 55 levels in the near term and hence a drastic fall due to rupee is unlikely within the next 6 months. An 8% fall in rupee year to date caused about 10% higher returns in rupee terms of the Nasdaq 100 ETF. that many give you an idea of how much returns can swing when they reverse.
2. Portfolio recommendations/suggestions is normally done through the ‘Ask Advisor’ feature available in one’s FundsIndia account. This is available for all FundsIndia investors free of cost. All investment details too is available in the account.
Thanks
Hi,
Isn’t it a better option to simply buy foreign ETFs? So one could simply buy the Vanguard Value Index (VTV). ishares Russell 1000 Value ETF (IWD) is also available. Expense ratio is very, very attractive. It is not that difficult to open an account to trade in US / International exchanges. E-trade & Interactive brokers are offering this facility.
Hello Aditya, First, not many MF investors have a demat account. Second, most local brokerages require a hefty deposit as high as Rs 5 lakh for a foreign brokerage account. Three, most of them provide access to only selective international stock markets/stock exchanges and not a wide range. If these can be overcome (if you are a savvy equity investor), then going intl. directly is a good option. Tks, Vidya
Hi, thanks for the reply. Assuming that the points raised can be overcome, what would be the tax treatment of direct equity holdings abroad? What about 2yr bonds (maturity > 1 yr) held abroad?
Hi Aditya, they will be treated like debt for capital gains tax purpose. Tks, Vidya
Hello Vidya , I wanted to invest in FT India Feeder Franklyn US Oppotuniteis Fund , But Fundsindia platform does not have this fund listed on it ? Any other Fund you recommond that invests in US markets ?
Hi Ivian, Kindly look for the fund name http://www.fundsindia.com/products/mutual-fund/scheme/FT-India-Feeder—Franklin-U.S.-Opportunities-Fund-G-?c=16071 when you search it in your list. It will appear under equity classification.
Vidya
Vidya , I want to set up a monthly VTP on this fund. Can you suggest a debt fund to pull in funds from please.
Thanks,
Vivian
Helo Vivian, I suppose you meant an STP (or you want to value average it using VTP?). Be a little careful while doing value averaging on foreign focused funds. Because there are 2 variables at play with a foreign fund: one the performance of the underlying fund (of course based on the foreign market) and the movement of the dollar against the rupee. The currency movement may trigger you to buy less or more of the fund in a VTP, even if performance remains constant or actually becomes lack lustre.
With franklin, you may go for Franklin India Treasury Management for the liquid fund from which to initiate a transfer.
In future, request you to kindly use the ‘Ask advisor’ forum in your account (click help tab to see this) for fund/portfolio queries to enable us to track your queries and respond systematically. The blog may be used for more knowledge-sharing/seeking queries. Many tks, Vidya
Hi Vidya,
As you said, these US focussed funds are treated as debt funds in India. But I couldnt find in your article and in comments section, in which category (liquid, ultra short term, short term, long term) these debt funds lie. my reason for asking these is just to find out for how many months I should be invested if I plan to do so.
I beleive these are invested in Us equities (unlike Indian debt funds portfolios) so this kind of categorization doesnt exist. Its just that I need to follow it and try to avoid exit load charges while redeeming.
Regards
Amit
Hello Amit, international funds are categorised as debt funds for tax purposes alone. That has nothing to do with exit load. Exit load is determined by individual funds.
For capital gains tax purpose, if held for less than 1 year, it will be taxed at your slab rate. If held for more than 1 year, tax would be 10% without indexation and 20% with indexation.
As for exit load: for investments redeemed within 3 months exit load is 3%. if redeemed between 3 to 18 months load is 1% and beyond that there is no exit load. Hope this helps. Thanks.
Just want to confirm that buying these mutual funds will not have any tax implications in respective countries? For instance, buying MOSt Shares NASDAQ 100 ETF will not incur any tax filing requirements in US, right?
Thanks,
Chitra
Hello Chitra, If you are a resident Indian, you do not incur any taxes outside India. It is local thanks, Vidya
Thanks Vidya!
I recently started investing in ICICI Prudential US Bluechip Equity Fund, which invests directly in US Stocks, and Franklin India Feeder US Opportunities Fund and JPMorgan Europe Dynamic Offshore Fund, which are feeder funds. All these funds are registered in India with the Sebi
Are investments in these funds regarded as foreign assets? Explain in detail
Please reply soon
Hello Amol, In future, if you are a FundsIndia account holder, please raise your query through your account so that it is quickly attended to. the blog is merely a public discussion forum and responses may be delayed. To answer your question, investments by Indian funds in equities abroad is treated as foreign equities. To this extent, their tax treatment is like debt. However, you do not have to disclose them as a foreign asset, if that is your question. This is my understanding on the latter. Please confirm with your auditor on such declaration issues. Vidya
Hi Vidya,
Can you name some top mutual funds which have good international exposure. One of them I know is PPFAS Long Term Value Fund.
Thanks,
Joydeep
Joydeep, If you mean India focused mutual funds (like PPFAS) with international exposure, the other one is Templeton India Equity Income. The others are all proper international funds with primary investments in international stocks. Vidya
Thanks for your reply. For investing in proper international fund, do we need to have Deemat and Trading account or we can purchase like normal mutual funds?
Hello, You can purchase like regular mutual funds. Vidya
Hi,
I am reqular investor in Mutual Fund houses, of late i want to invest in International Funds, i did some reading on the aritcle and decided to start a SIP with ICICI Prudential US Blue Chip-Growth for Rs 1000 from April 2016.
I read more about this MOSt Shares NASDAQ 100 ETF, i want to go for it.
what you is your take on it.
They said minimum investment should be 100000 units, what will be that in indian rupees.
Thanks
Hello Karthik, You can buy even one unit of ETF in the stock exchange. Only fesh creation of units may have restrictions. It is a good ETF with weight for tech. companies. But its valuation is considered very high. Be prepared for any sharp fall in it when there is any correction in US market.
Hi Vidya,
I am an existing investor in FundsIndia and am interested in investing in US based mutual funds. Would like to have a chat with you on this and have sent an email through the FundsIndia website also. Please call me when convenient.
Thanks
Thiagarajan
Hello Sir,
Thank you for writing to us. If you had sent the query through advisor appointment addressing me, it would come to me. Perhaps, it has been assigned to your advisor. Investor interactions and queries are usually handled by our advisors and they seek research inputs where required. I shall forward this to our research head and he will trace your query and seek our inputs accordingly.
thanks
Hi Madam,
Very good briefing about US funds
I have bough stocks in MOSt Shares NASDAQ 100 ETF and for India focused reason, bought stock in HDFC Bank and Canara Bank.
From your good points, i like the fourth point very much
” banking may provide high returns in the Indian context than abroad, while technology companies may be a better bet outside India.”
My question here, MOSt Shares NASDAQ 100 ETF invest heavy in Tech and at same i have bough stocks in HDFC and Canara.
Is this combination fine.
Thanks
Karthik,
Sorry for the delayed response. I will be unable to comment on stock-specific views. Thanks, Vidya
HI
I want to invest in “FT India Feeder – Franklin U.S. Opportunities Fund”. So please some buddy can suggest will it be good. because i want to keep initially for short term(like one month) then i want to continue it for long term with SIP
Hello ajay, Intl. funds should be used as diversifiers. Besides, they are certainly not meant for the short term. the propsect of a US-focussed fund will hinge on that’s country’s equity fundmantals and also on the currency (a weak rupee gives higher gains..that is whay all US funds are looking up now). hence, if you have a long-term view and wish to add the fund as a diversifier (10-15% of total portfolio) then you may consider. thanks, Vidya
Hi vidya
Just read this post..thnks for being such a gem of an advisor for invsmnt dodos like me…my querry…for gulf based nris wud funds as icici us blue chip or ft us feeder be a longterm (10 yrs) sip alternative for diversified market exposure or shud v go invsting thru us etfs as vanguard fund as suggested by somebody else here?….for better returns and tax considerations??
Kindly advice
Rgds
Karthik
@karthik and any others who are considering US or Global ETFs:
1. You don’t need to have a demat account. Signing up for an international brokerage is easy. They sometimes require 10 lakhs opening balance, but you can get it back (check). Most middle class Indians put down that much for real estate without hesitation. Historically equities beat real estate.
2. Sign up with Interactive Brokers. Brokerage is 1$ a trade. Even if you trade 10,000$ or 100$.
3. You probably do not require expert guidance for developed market investments, because active investing doesn’t work there. 2 simple passive ETFs will expose you to the global economy:
VTI – Vanguard US ETF – expense ratio 0.05%
VEU – Vanguard Global Ex-US ETF – expense ratio 0.15%
As a general thumb rule, at least 20% of equity exposure ought to be international. Otherwise you’re too dependent on India & its policies. Dollar cost averaging is smart given that markets have run up. Staying invested as long as possible is also optimal as it is for all equity.
Doing research is easy. Use this: http://etfdb.com/. Google interesting tickers. You’ll get the hang of it within one or two weekends.
You can also try this link in the same website: http://etfdb.com/cheapest-etf-for-every-investment-objectives/
Only buy India based feeder funds if buying ETFs is not feasible for you. The expense ratios of Indian feeder funds will bleed the returns over the long-term.
@ Karthik, @aditya – Thanks Aditya for your inputs. They are very useful. I meant demat only if you are using some of the Indian brokerages that offer intl. equities. Rs 10 lakh is a big amount. Although you rightly said that many middle class Indians puts that money up for real estate, our interactions suggest that few Indian do that with equities. But being an NRI, Karthik may well 🙂
Just one point on the expense ratio, yes FoF expense ratio is high but remember that with the Indian currency having shown only a long-term depreciating trend against the dollar, the returns in Indian rupee (if one invests through Indian funds) may not be as terrible as you seem to suggest. Also, I am afraid, unless one is conversant with the US market, doing research, although there are enough resources may be highly time consuming and whether a lay investor who wants to put his money and relax can afford to do it is questionable. Thanks for the valuable inputs. It will certainly help investors who are serious abt. doing their own research and investing.
thanks, Vidya
Thanks a lot aditya and vidya.i was hoping to run a longterm sip prolly as a retirement corpus…but i hope as aditya suggests am able to diversify to us or global funds..(b/w..i thot i needed 2b a u.s permanent resident to invst in vanguard funds?!)…
And if i am able to do it…tht wud b gr8..!!:)..
And vidya..thnks again for being an invsmnt light house:)…thou… Being a gulf nri makes us rudder-less wr.r.t. the flambuoyant resident indian:);)
Wud keep u guys updated,
Cheers
Karthik
Can you please guide about the Indian Equity Mutual Funds which are only listed outside india like ireland or luxembourg but invests in local indian equity market.
Hello Salman, there are Indian fund houses operating offshore funds but we would not have info about them as they do not fall within the Indian mutual fund ambit. thanks, Vidya
Hi Vidya,
I am trying to understand how to measure the profit/loss from US Fund considering how much is $ worth in indian currently. Especially MOSt Shares NASDAQ 100 ETF – this one.
Currently 1 US dollar is some 68+ INR. After sometime if this equation changes say for example 1 US dollar is 50+ INR or lesser, then will there be depreciation of the returns value too?
Kindly suggest.
Thanks
Swapna Priya
When the rupee appreciates against the dollar (as illustrated by you) those who put their rupees in international funds will see a fall in their returns to the extent of currency appreciation of the rupee. If rupee depreciates against the dollar, they gain.