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Foreign funds now on offer in India
Kayezad E Adajania, Outlook Money
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August 21, 2007

If the recent trend of new fund offers is anything to go by, foreign equity funds are gaining popularity. A total of four diversified equity funds that would invest your money abroad were launched in the past month.

Increasingly, mutual funds are finding it easier to invest their entire corpuses in international funds abroad than scouting for, and investing in, foreign securities themselves.

A varied taste

While Kotak Global Emerging Fund and DWS Global Thematic Fund will invest in schemes that track the emerging and global equity markets, respectively, DSP ML World Gold Fund would invest in MLIF World Gold Fund - its parent Merrill Lynch's equity fund that invests in equity shares of gold mining companies.

As against an exchange-traded fund that invests in gold-denominated instruments, DWGF will aim at actively tracking gold prices. Only Kotak MF, which is an Indian MF out of these four MFs, has tied up with an international fund house (T. Rowe Price; T. Rowe Price Funds SICAV Global Emerging Markets Equity Fund) to invest in the latter's MF scheme.

On the other hand, Sundaram BNP Paribas Global Advantage Fund has chosen to opt for the fund-of-funds route and diversify beyond equities. While SGAF will invest 70-100 per cent of its corpus in equity funds in emerging markets, it will also invest up to 30 per cent in real estate and commodity-based companies through ETFs that track the two segments.

Says S Vaidyanathan, head (product and risk), Sundaram BNP Paribas MF: "No one single MF scheme can outperform its peers as well as the markets over a long period of time. Hence, it's better to adopt the FOF route to select the best fund managers over time."

Higher entry loads

Some of these funds have charged higher entry loads (see Going Global) than existing diversified equity funds (2.25 per cent). Market sources say low demand and strong competition among these four, coupled with these schemes' complexities makes it tougher for distributors to hawk these products and, hence, the higher entry load.

Should you invest?

If you are investing in a foreign fund for the first time, SGAF may not work since it goes beyond equities, has higher cost since it is a fund of fund and charges 0.75 per cent over the underlying fund's costs.

DWGF aims to offer you a returns kicker by actively managing a portfolio of gold mining companies as against a Gold ETF that passively tracks the price of gold. Stick to a gold ETF if you do not want the hassles of holding physical gold and are yet looking for a decent alternative. Opt for DWGF only if you want to actively track gold prices.

KGEF and DGTF's international funds come with a long-term track record. While KGEF invests in emerging markets, DGTF will invest in global markets.

However, KGEF is a closed-end fund that would charge initial issue expenses of up to six per cent; your returns would be impacted to that extent. Take your pick or wait for Fidelity's upcoming foreign fund and then decide.

With Shruti Kohli

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