We believe the original intention was a good one and should be followed. Almost a year and a half ago, the Reserve Bank of India indicated basic approvals for Indian Mutual Funds to invest in global markets. The central bank limited the outward investment to $ 500 million. To many of us, the move marked a significant step towards integrating the Indian market with the global markets and giving the Indian investor an important weapon in his investment armory.

We at SUN F&C were the first to submit international fund offer documents to SEBI. We hoped to launch both a global equity fund and a global fixed income fund for Indian investors. We had hoped that specific guidelines for launching such funds would be completed quickly.

Progress,however, has been slow and one cannot help but think that this may be because there are still certain concerns that remain inadequately addressed and unresolved. I thought, therefore, that it might a good idea to revisit some of the important issues and evaluate them from the standpoint of the Indian investor.

What does global Investing mean for me?

Global investing means being able to legally invest abroad through mutual funds. You invest in Indian rupees in a mutual fund and the mutual fund investS in securities denominated in US dollars, euros, pound sterling, etc. In other words, for the first time, the Indian investor will get a choice of making investments in overseas industries and corporates.

What are the benefits? Why should I invest in such schemes?

With international investing, you can diversify your risk by investing in more than one country or one currency or one market. In other words, you move away from the single country, single currency, single market format. Aninternationally diversified portfolio would also mean a lower risk of issuer default since there would be a better, wider choice available for investment instruments, for benchmarks for performance, rating of instruments etc.

Overall, this makes for better portfolio risk control and enables the investor to achieve a better risk return trade-off and typically, better returns for a given level of risk.

What is his expertise in investing in such markets?

The obvious choice then works out to be the foreign institutional investor who have floated domestic funds in the country. With the expertise of their parents, who have been investing in international markets for quite a while available to them, FIIs have an undeniable edge over their domestic counterparts.

What other advantages can the Indian investor hope for?

There are two other advantages which must be mentioned. Internationally-oriented funds would have an in-built hedge against rupee devaluation. Indian investors would also get anopportunity to access international fund management expertise for managing the international portfolio. This could be either through direct investments made by a mutual fund, advised and assisted by a global fund manager or by investing in an existing international mutual fund. The important point to note here is that all of this would come to the Indian investor without foregoing any of the attractive features of the Indian mutual fund schemes.

The investor would still have an open-ended structure with simple subscription and redemption procedures, easy liquidity with payment effected within 48-72 hours, systematic investment facilities and tax advantages. This is so because the schemes, through which an Indian investor invests abroad, will be a domestic mutual fund scheme enjoying all the benefits available to it under the Indian regulatory or fiscal regime.

What is the downside? What are my risks?

You carry the same risk as a normal equity or fixed income investment directly or through amutual fund. Being a multi-currency format, however, introduces the risk that adverse currency movements may affect the overall returns of the scheme. But that is in the eventuality that Indian rupee strengthens against dollar and euro, which is not a likely in the near future.

Nikhil N Khattau, CEO, Sun F & C Asset Management