MFs lukewarm over offshore investments

The domestic mutual fund industry has raised only about $ 400-500 million from local investors for offshore investment schemes, indicating that the hike in the overall limit for such schemes by $1 billion to $5 billion by the Reserve Bank of India (RBI) was just an enabler for the industry to offer global diversification for investors and there was no pressing requirement, say analysts.

The regulations, which also hiked the individual cap on mutual funds to $300 million for offshore schemes, have never been a hurdle for the industry, they say.

Fund managers have been making a case for diversification, but going by the trend of some recently launched offshore funds, they are not appropriately diversified.

Most of the funds have been investing into emerging markets across Asia, where there is a volatility concern.

Moreover, most of the offshore schemes launched by fund houses have set apart 65 per cent of their allocation to the booming Indian markets and offer only a part of the funds collected to global stocks.

"Retail investors look for diversification only when market takes a dip. Relaxing existing regulations can't force or drive customers to invest overseas. There is a very limited appetite among customers to invest overseas," said Dhirendra Kumar, CEO, Value Researchonline.

However, high networth individuals (HNIs) or the ultra-rich investors may be looking for global diversification even at the present level itself.

Vijai Mantri, CEO, Deutsche Asset Management, said: "Indian markets are on fire, so customers don't want to look beyond India. The question is not much about regulations than being about customer demand."

Mukul Gupta, CIO, Birla Sunlife Mutual Fund, said, "Diversification is the need of the hour. Indian investors have to become a part of the global growth story. There are markets outside India, which are performing well. Now more international products will come to India."

But, there is a flip side attached to it as pointed out by an analyst. It can result in less knowledgeable fund managers burning their fingers investing overseas.

Ill-advised investors can fall prey to less thoughtful fund managers and that can be dangerous.

Nilesh Shah, deputy managing director of ICICI Prudential Mutual Fund, points out, "We need to have that kind of expertise for investing overseas and, frankly speaking, only one or two fund houses in India have it."