A volatile equity market has compelled mutual funds to file applications with Sebi to introduce emerging market funds. Kotak MF and Templeton India plan to introduce Kotak Emerging Economies Fund and Templeton India Emerging Markets Fund. The fund houses can invest more than 65% of the corpus in the emerging markets to provide a better return to the investors.
The rising inflationary pressures, due to high oil and food prices, has led to the hardening of the interest rate scenario that was responsible for the volatility since the beginning of the current calendar year.
Both Bombay Stock Exchange (BSE)?s Sensex and National Stock Exchange (NSE)?s Nifty have shed around 30% during the corresponding period. This market meltdown has deterred investors from investing in the equity linked schemes. The RBI has also increased the interest rates drastically to bring down the inflation, currently looming at 12.44%. The rising interest rate also makes the debt market linked funds unattractive in the long term.
Commenting on the inflation and interest rate, Kaushal Sampat, COO, Dun & Bradstreet India, said, ?Given the supply-driven nature of the current inflation, the RBI?s measures are likely to have limited impact towards controlling inflation in the short run. The fiscal measures initiated by the government to augment supply are expected to begin yielding results from December. As such, we expect the inflation rates to continue to remain elevated and in double digits till December 2008.?
This discouraging situation has compelled the fund houses to introduce an alternative investment schemes for the investors. Fund houses, including Kotak Mahindra and Templeton India sought regulatory norms to offer emerging markets fund.
Giving reasons for offering emerging markets funds, Sandesh Kirkire, CEO, Kotak Mahindra Mutual Fund, said the equity linked schemes may not attract the investors in a volatile market. Hence, the fund houses offering emerging economy fund makes sense.
?The investors can get better returns from these emerging market funds,? Kirkire said.
The fund houses can invest around 65% of the corpus in the emerging markets like Korea, Taiwan, Russia, Vietnam and Latin American, which look attractive compared to the developed markets.