Several mutual fund houses have started allowing investments
in their international fund schemes which were previously closed.
For the uninformed, SEBI had directed fund houses to stop
accepting fresh investments into schemes investing in foreign companies at the
beginning of the year.
Now some fund houses are allowing investments only via systematic
routes,that is SIP & STP whereas some are also allowing via lumpsum.
Certain fund houses are allowing new investors while some
have reopened investments only for current investors.
The rules vary from fund house to fund house so it is better to check prior to investing.
Why was the restriction imposed?
SEBI had directed fund houses to stop accepting fresh
investments into schemes investing in foreign companies.
This direction was warranted since the mutual fund industry
had surpassed the limit of $ 7 billion for overseas investments.
This was applicable for all fund houses with schemes
investing in foreign companies.
Therefore fund houses had been conveying to their investors
about the same which was applicable on sip, lumpsum and stp transactions.
It had no bearing on past investments nor sip registered
previously.
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Why the partial reopening of International mutual funds?
To put it simply, international mutual fund have been
struggling with negative returns for several quarters now.
This meant the AUM of most international funds had taken a
beating due to negative returns.
Another factor that contributed to reduction in AUM was the
global selloff.
Both these factors created scope for additional investments.
Why are International Funds struggling?
Inflation
Post the 2008 financial crisis, central banks across the
globe have kept interest rates on the lower side to encourage growth.
A very obvious side-effect of this approach is the rise in
inflation since easy liquidity fuels inflation.
Coupled with the Ukraine-Russia conflict and the continued
lockdown in China disrupting the global supply, rising rates have added to
inflation.
In March 2022, the US for example had its highest inflation
rate for around 40 years.
To counter the rising inflation, in May 2022, the Reserve
Bank of India hiked the Repo rates by 40 basis points to 4.40%.
How inflations
impacts Equities
High inflation brings along with it higher interest rates in
order to tackle high inflation.
Higher interest rates means higher input costs for
businesses.
These higher costs are then passed on to the end customer.
All of this leads to higher prices for the end customer.
Demand therefore takes a hit which in turn leads to slower
economic growth.
Lower economic growth would mean pressure on earnings growth
of companies which therefore means moderate growth for the companies.
Ukraine- Russia
Conflict & The China lockdown
Just as most of the world was coming back to terms to some
sort of normalcy, the Ukraine- Russia conflict has thrown a spanner in the
works.
China continues to struggle with containing corona virus and therefore
stricter lockdowns still prevail.
Both these situations have disrupted the global supply
chain.
Crude oil has touched new highs while there are fears of an
impending food scarcity.
The Ukraine-Russia conflict has completed 100 days and there
are no signs of a ceasefire yet while the stricter lockdowns in China too show
no signs of receding.
Equity markets do not take a liking for uncertainty.
|
Scheme |
1
yr Return |
|
Invesco Ind – Invesco Global
Consumer Trends FoF |
-42.62
% |
|
PGIM Ind – Emerging Markets |
-41.58
% |
|
PGIM Ind - Global
Opportunities |
-37.32
% |
|
Kotak Global Innovation FOF |
-35.95
% |
|
Edelweiss US Tech Equity FOF |
-33.89
% |
What changed after 2020?
During the market crash of 2020 due to the corona outbreak,
the Indian stock market was one of the worst affected.
After a couple of months when recovery in terms of market
returns picked up, developed markets initially paced much ahead of the
developing economies.
This is when diversification as a concept gained more
prominence.
This meant investors were now ready to look beyond domestic
markets for their investments and mutual fund houses which had hardly launched
any international fund schemes were now changing their stance.
Being able to invest in global tech giants like Facebook,
Apple, Amazon, Netflix and Alphabet (Google) was another motivating factor.
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