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| While domestic investors are running around in circles desperately seeking avenues for investment that would give them reasonable returns, there is another section of investors significantly impacted by the low interest rates -- the non-resident Indians (NRIs).
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| Till recently, NRIs were putting all their dollar savings into non-resident external (NRE) accounts, which gave them returns averaging between 5 to 5.5 per cent.
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| However, recently the Reserve Bank of India (RBI) took away the advantage. The central bank, in a circular capped the interest on fresh NRE rupee deposits of one to three years at 2.5 per cent above London Inter-Bank Offered Rate (Libor) to ensure consistency in rates for NRI deposits. The result of this was a lowering in the rates offered by the NRE accounts.
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| As a result, NRIs have been turning to mutual funds. But offshore funds floated by mutual funds operating in India seem to offer better returns to them than domestic schemes.
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| For the record, offshore funds are those which invest in the domestic equity shares of Indian companies but are priced in a foreign currency, usually in US dollars.
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| They provide access to the local stock markets for overseas investors.
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| Birla SunLife Securities, in a research done on the advantages of offshore funds vis a vis other mutual fund schemes, has come up with the findings that offshore funds have been offering returns upwards of 20 per cent over a period of one month and even more than 50 per cent during the course of a year.
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| Compare this with domestic equity schemes that returns between 16 per cent (over one month) and 40 per cent over one year.
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| Offshore funds make sense now especially when the rupee is appreciating against the dollar. Since these schemes are priced mostly in US dollars the appreciation in the local currency has a positive impact on the net asset values (NAV) of the domestic assets.
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| The investors would have the advantage of getting returns which are based on dollar NAVs, where the currency risk is lower if the investor has put in dollars rather than convert it into the local currency first.
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| Of course some currency risk is there at the fund level especially in those cases where funds maintain their portfolios in rupees and the valuations are marked-to-market in dollars.
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| Since most of the offshore funds have their operations in tax-friendly regimes such as Mauritius (which does not levy any tax) the funds generate higher returns and are able to pass this on to the investors.
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| Which means that any income earned on the fund either through dividends or capital gains will not be taxed in India.
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Offshore funds also have a lower expense ratio compared to their domestic counterparts. While domestic funds
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