Thursday, November 27, 2014

OVERSEAS MUTUAL FUNDS INVESTMENTS...LOOK BEFORE YOU LEAP.

In continuation to my previous article on Fixed Deposits today I will be sharing some insights on the Mutual Fund New Fund Offerings. The Indian market has set the tune of the market to create new historic highs and we will witness the same frequently in the coming days.  This is the time when NFO come into market to garner funds from investors and deploy the same based on various strategies in to the market through Mutual Fund.  There was time when infrastructure theme based mutual funds used to be sold. Investors made returns from these funds initially but once the concept became too much common the preference of the same started losing.  Infrastructure funds were later on identified as no less than to diversified equity fund.  After 2008 crisis we found that overseas based funds started coming into the market. The prime reasons behind such concepts are that we all know that Indian being an emerging economy FII’s and domestic investors have been aggressively investing. Further you can copy anyone but before you paste think twice.

Due to this overseas funds were unable to garner funds from their FII’s and Domestic investors (due to cash strapped and austerity measures). Hence they came up with Fund of Fund concept to garner funds. Slow down of Europe and weak growth of US has created a nightmare for the overseas fund managers. Now juts tell me you have invested in any Japan based FOF or theme based funds now with the current recession for Japan what type of return you expect. In another instance you did an investment in FOF or theme based fund in Europe, now with the current slowdown of the European economic growth what type of returns do you expect the market of Europe and the funds to provide. We need to understand that your money is  going to be invested in their country, in their company so we need to know who are buying their products based on which the sales numbers would come and profit would generate. If you don’t find the answer to this then simply drop the investment idea despite of how much training and spoon feeding have been done by the sales personal.
Absolute Returns of Overseas FOF or Theme Based Fund launched in India 

Among these entire overseas funds or concept based funds, few funds have managed to survive and provide decent returns in the long term. The reason behind is that the concept of the fund and theme of the fund was the game player. Credit goes to the fund manger too but performance of other funds has created big question mark on the overseas funds or theme based funds which are coming to India. Poor performance of these funds creates problems for the investors where goal planning has been married with the scheme for the investor. We should know that currently Indian economy is going to be one of the highest destinations of investment compared to other economies. When we do investments we need to understand the underline economic growth factors rather than trusting blindly on the market growths or equity earnings expectations. If I find that Indian corporate earnings would grow by 15-20% over the next 5 years then why should I bet on someone else? Greed is good but with limitations.

The thumb rule is simple if economy growth corporate profits would grow over the long term. Many argument would come for short term hiccups based investment double stories but remember they are short term and very few are fortunate to win the dice. Risk has to be taken but now playing dice but with full knowledge based investments. Many arguments would come that it’s time for diversification and we should move behind the borders of doing investments. Well in that case these investments need to be sold by saying that doing investments in Europe and the return from the same may take a decade to get. We all know and we can all remember about what is being told while these overseas FOF/or theme based funds are being sold.

 Try to understand the underline theme and imagine how the growth will come and from where. Numbers are easy to fool compared to logical reasoning. Stop doing investments based on rumors and herd based philosophy. The one who is sharing the success story of investments in these type of investments might have done the same when the recession of 2008 was ruling. We are today at 2014 and soon we will be in 2015 hence times and things both have changed. You can copy anyone but before you paste think twice.

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