Although we have received approval for introducing an international plan with a corpus of upto $50 million in our existing schemes, we may not be doing it now, told FE on the sidelines of a seminar on Investment Options In the Current Market organised by the Indo-American Chamber (north India Council) in New Delhi.
Citing that the diversification cost is very high now, Mr Mitra said: The return given by international papers is way below the domestic papers and the forward premium on rupee has been falling. Hence, such plans may generate returns that could be way below the debt schemes focussing on the domestic markets.
In fact, the size of such plans also matter, he said. Unless we have a sizeable corpus initially, we may not benefit from launching such a plan. We are going and investing in a huge market of a rated country and with a small corpus at out disposal, we may not even take advantage of a policy change in that country. The fund manager may also be handicapped with such a small corpus, he added.
Also, if the corpus is small, the cost to the investor will be high and hence provide low returns to the investors.
If the diversification cost becomes favourable in future, we may introduce such a scheme, he said.
The Budget 2002-03 had allowed mutual funds to float schemes for domestic investors to take overseas exposure in AAA-rated sovereigns of countries with full convertibility. In June this year, SUN F&C Mutual Fund had launched an international plan which could mop up only Rs 7 crore initially and now the scheme has a corpus of around Rs 10 crore.
The scheme has generated a return of around 3 per cent since its inception. Franklin Templeton is the second mutual fund to come out with such a scheme.
Building up a case for equity, Birla Sun Life AMC highlighted the importance of this as an investment option in the seminar. Equity is the only instrument which has beaten all other asset classes over a period of long time.
While equity has given returns way above the level of inflation, all other asset classes have produced returns close to the inflation level, the mutual fund said.
Also market capitalisation to gross domestic product (GDP) ratio of India is low, which shows the potential for growth opportunities in equity.
Besides, improving outlook for corporate earnings as well as more FII allocation to India should make a win-win situation for equity investors.