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D-Street to Wall-Street: Investors bet on foreign cos via MFs

(This story originally appeared in on Sep 25, 2021)

Several Indians are investing in international markets like the US and China through the mutual fund (MF) route in a bid to diversify their portfolios. Strong market rallies and appreciation of foreign currencies are other factors contributing to rising flows in the niche category, a trend that has picked up in the last couple of years.

Most major asset management companies offer mutual funds that invest in stocks listed abroad, including through fund of funds (FoF), exchange-traded fund (ETF) structures. Investing in foreign companies like Amazon and Alibaba through mutual funds turns out to be cheaper than buying their stocks directly for Indian investors.

RBI data released last week showed that investments made by Indian mutual funds in foreign stocks jumped over three and half times in FY21 to Rs 20,865 crore from Rs 5,808 crore at the end of March 2020. The launch of several new funds this year is expected to give a further boost.

A combination of factors, including new entrants into the market, has led Indians to explore options to invest outside India in the last one and half years, according to Niranjan Avasthi, head of product marketing and digital business at Edelweiss Mutual Fund. “Overall, investing has taken off. People have also realised there are good opportunities to invest outside India…it could be because of fund returns, awareness campaigns,” Avasthi said.

According to Ashwin Patni, head of products and alternatives head at Axis Mutual Fund, though there will be a home market bias, the share of allocation to international funds will grow to about 10% in five years. “We (investors) understand the opportunities the Indian market presents better, so we will always prefer to have a large allocation to the domestic market. There was virtually zero allocation to global markets, so from there it will move to a more material number, eventually, 15-20% of capital will go to non-home markets,” Patni said.

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