Use core and satellite strategy to invest in global equity mutual funds

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Strong global market performance, increasing appetite for international equities, strong liquidity and restrictions on product launches is pushing fund houses to launch a slew of differentiated international funds. However, financial planners advise investors to follow a core and satellite approach while building their international portfolios and not just buy products because they are on offer.

The core part should be allocated to broad index funds or broader markets, with the satellite part to be used to take country-specific or thematic bets.

Among the schemes where new fund offers (NFOs) are open are Motilal Oswal MSCI EAFE Top 100 Select Index Fund and PGIM India Global Select Real Estate Fund of Fund, while NFOs of Nippon India Taiwan Equity Fund, Invesco Blockchain Fund, and Mirae Asset Hang Seng Tech ETF Fund of Fund are expected later this month. Financial planners believe investors could put up to 20% of their equity allocations overseas but suggest it must be done slowly and gradually over a period, given that valuations are steep.

“Adopt a core and satellite approach while investing overseas and built this allocation gradually over a 12-18 month period. The core part, which constitutes 80% of the total allocation, should be to broad-based markets or index funds, with the balance 20% into country-specific or thematic bets,” said Vishal Dhawan, founder, Plan Ahead Wealth Advisors.

Wealth managers urge investors to diversify geographically as India is just 3% of global market capitalisation.

“Diversifying overseas gives you an opportunity to invest in high growth businesses which we consume in India, but are not listed here,” said Deepak Chhabria, founder, Axiom Financial Solutions.

Given the number of new fund launches around specific themes and countries, financial planners warn investors to not be carried away by them. “Country-specific funds or narrow themes carry risks which are difficult for investors sitting in India to comprehend,” adds Chhabria.

Investors looking to book profit in equities after the sharp rally and allocate to real estate globally could consider PGIM India Global Real estate Fund of Funds, while those with a very high risk appetite looking for an aggressive country theme or sectoral new-age theme can consider exposure to Nippon’s Taiwan Fund or Invesco Blockchain Fund.

Chhabria advises investors to allocate 10-15% of their equity portfolio to international equity funds and prefers broad ETFs or index funds or diversified international funds that invest in broad markets as the chances of going wrong are limited. He prefers Motilal Oswal NASDAQ 100 ETF, Franklin India Feeder US Opportunities Fund and DSP US Flexible Equity.

Dhawan recommends HDFC Developed World Indexes FoF or a combination of Motilal Oswal S&P 500 Index fund and Motilal Oswal MSCI EAFE Top 100 Select Index Fund.

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