Overseas funds

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: when opportunity seems conspicuous. However, it is advisable that these investors must not park their funds in these funds with a longer-term horizon and exit from it as and when opportunities and aims are fulfilled. One must consider the risk factors of overseas markets investing before taking a decision, warns Devendra Nevgi CIO-Debt, Quantum Mutual Fund.

Also, you need to take into account funds, which claim to have a global focus and under the claim of picking up companies on the basis of competitiveness (such as export), these funds pick up Indian companies.

An important point you should note is that, when the term emerging markets is used, Indian markets also come into picture and these funds defeat the very purpose of investing in funds having an overseas exposure: Diversification.

Various facets

Another crucial point that you need to take into account is whether the fund you have chosen invests directly into the markets of the country concerned or through mutual funds (also called Fund of Funds) or any other instrument (or security) in that country. There are risks associated with indirect investment. Your fund would invest primarily in shares/units of a mutual fund, which in turn invests in companies incorporated or which have their registered office located in or derive the predominant part of their economic activity from the country concerned. Hence the fund's performance may depend upon the performance of the underlying fund, which in turn depends on currency risk.

The assets in which the underlying fund is invested and the income from the assets will or may be quoted in currencies, which are different from the underlying fund's base currency. The performance of the underlying fund will therefore be affected by movements in the exchange rate between the currencies in which the assets are held and the underlying funds' base currency and hence there can be the prospect of additional loss or the prospect of additional gain to the investors greater-than-usual-risks of investment. The performance of the underlying fund may also be affected by changes in exchange control regulations. There would be lower transparency, as investors would not be aware of the portfolio and the sectors where the overseas fund exposure is.