Market turmoil: Few MF investors take a soft hit

MUMBAI: A small group of Indian mutual fund investors with portfolios diversified globally has taken a softer hit from the stock market turmoil than peers who opted for funds investing locally, industry experts said. Falling Indian stocks, which have lost more than a fourth of their market value so far this year, wiped out nearly a third of the net asset value of domestic equity funds on an average, data from fund tracker Lipper showed.

But funds investing bulk of their assets globally have fallen less than 9 percent, lessening the blow to investors portfolios. "It teaches a lesson... you cannot ignore diversification," Suraj Saraf, senior analyst at fund tracker ICRA, said.

Investors' confidence have been shaken this year by fears of escalating credit market woes, looming risk of a U.S. recession and as commodity and oil prices pushed inflation higher. Worries about foreigners selling share holdings also eroded support. India's benchmark index, down about 30 percent from its life high, has reacted far more sharply, making the losses of globally-invested funds look relatively milder, Rajan Krishnan, business head of Principal Pnb Asset Management, said.

"It's all about insurance... you don't want to claim an insurance but you take it just so that you are protected," Krishnan, whose firm launched India's first global fund, said. "It will strengthen the case (for global funds)... I am hoping that Indian markets do recover very strongly but I am just hoping that in that time people don't forget again," he said.

Indians have started to diversify globally, but nearly half of the $5 billion that domestic funds can collectively invest abroad remains unutilised. Eighteen internationally-invested funds managed about 104.9 billion rupees at the end of February, nearly five times more than the amount they held a year ago, when there were only two such funds, data from fund tracker ICRA showed.

Over the longer term, local funds would outperform globally focussed funds, but the latter make sense from the diversification angle, Dhruva Chatterji, a research analyst with Lipper, said. They will help "to tide over times when Indian equities may be underperforming its global peers," he added.

Source : The Economic Times