The Hindu Business Line : Is a global fund a good idea?

I invested Rs 49,000 in the Principal Global Opportunities Fund one year ago. The scheme has not shown much appreciation. Please advise me whether I should switch or hold.

Sathish Kalanji

We suggest you switch your investments to a diversified equity fund which focusses on Indian stocks. The Principal Global Opportunities Fund is a fund that invests in stocks of select companies listed abroad, subject to certain SEBI and RBI regulations. It is a suitable investment for an investor looking for diversification opportunities.

To remain invested in the fund, you need to believe that Indian stocks will under-perform global equities over the next few years.

Given that India offers stronger prospects for economic growth than most other global economies, this does not appear likely, with the information available at this juncture. Investments in equity funds focused on Indian stocks may deliver a 10-15 per cent return over the next three-five years.

Principal Global Opportunities is a fund for fairly informed investors. Your decision to enter or exit the fund should be based on your outlook for equity markets outside of India.

If you do not have a view on the global markets, it may be best to switch your investments into a diversified equity fund that is India-focused.

With the Indian economy on an upswing, the country's stock market has been one of the best performing over the past couple of years. This has obviously led to the Principal Global Opportunities Fund trailing its peers which invest in Indian stocks.

The fund also has to adhere to certain investment restrictions on account of RBI and SEBI regulations about overseas investments by mutual funds.

For instance, it can only invest in companies listed on the overseas stock exchanges that have a shareholding of at least 10 per cent in a listed Indian company.

These investment restrictions place further constraints on the stock and sector choices made by the Principal Global Opportunities Fund. The fund manager may thus, not have a free hand in investing in the best performing companies in the global markets.

As an investor, if you already hold a portfolio of equity funds and are interested in diversification, you could invest in short-term debt funds or floating rate funds.

These will deliver steady returns even if the stock market fails to deliver up to expectations. Small savings schemes may be a good option too if you want diversification, but don't mind locking in your funds for a few years.

Based on the above, we suggest you switch your investments to funds with a good five-year track record in the domestic market.

The HDFC Top 200 Fund, Franklin India Prima and Principal Growth may be among the funds you consider.

Queries may be sent to: mf@thehindu.co.in or by post to Q&A, Business Line, 859/860, Kasturi Buildings, Anna Salai, Chennai - 600 002.

Aarati Krishnan

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