India-dedicated offshore equity funds outperform and attract inflows

Several India-dedicated offshore equity funds have outperformed the benchmark indices by a respectable margin over the past one-year. Some of the out performers have delivered better returns than the average category returns of domestic equity funds.  The top performing fund over one year period delivered a return of 48.20% while the MSCI India USD index returned 25.85% over the same period.  This out performance could be attributed to the rally in Indian stocks and a strengthening rupee. 

An India-dedicated offshore fund would be one that is not domiciled in India, but invests primarily into the Indian markets.  Generally, offshore funds are launched from tax havens like Mauritius or Luxembourg.  Offshore funds have been active in India, investing across sectors and market cap.  Better returns and an upbeat outlook on the domestic economy are drawing foreign investors to India-dedicated offshore equity funds.

http://www.thehindubusinessline.com/2010/10/27/stories/2010102753101200.htm 

http://economictimes.indiatimes.com/markets/analysis/India-focused-funds-outperform-benchmark-indices-in-returns-race/articleshow/6477377.cms 

http://economictimes.indiatimes.com/markets/stocks/market-news/India-specific-funds-attract-bumper-inflows/articleshow/6818005.cms 

http://www.morningstar.co.in/in/news/article.aspx?lang=en-IN&articleid=92806&categoryid=519 

Midcap/SmallCap funds versus diversified funds

Midcap/SmallCap funds are riskier than diversified funds. Midcap/SmallCap tend to out perform diversified funds during momentum phases, however, they can be very volatile in the short term. Thus the investment horizon for Midcap/SmallCap funds should be more than three years and allocation not more than large cap funds in the investment portfolio.  Investors should also preferably opt for the systematic investment plan or the systematic transfer plan routes where the risks are reduced by cost averaging.

http://economictimes.indiatimes.com/markets/stocks/market-news/Mid-cap-stocks-set-to-play-catch-up-soon/articleshow/6751059.cms 

Gold ETF have doubled since Jan 08

Returns from Investments in Gold have almost doubled since Jan 08 when equity markets crashed globally.  Investors would have reaped good returns on rebalancing the asset allocation in equity in 2007 and including Gold in the investment portfolio.  While Indian equities will provide good returns going forward, inclusion of Gold in the investment portfolio upto 5-10% can improve returns substantially.  Also, investments in Gold, work as a hedge.   However, as we are at a high for Gold, investing through the ETF route via a 3-5 year SIP/STP would be the right way to include the same in the investment portfolio.  Other investment options are through overseas funds and commodity exchanges.

http://economictimes.indiatimes.com/markets/commodities/Commodities-surge-on-Feds-stimulus-hopes/articleshow/6732590.cms 

Sector/Theme funds versus diversified funds

Sector/Theme funds like Banking, FMCG, Pharma, Infrastructure funds are riskier than diversified funds, as the investments are concentrated in a sector or few sectors. Sector/Theme funds tend to out perform diversified funds during momentum phases, however, they also tend to suffer huge downsides when markets fall.  As Sector/Theme funds can be more volatile; they are only apt for informed investors who have large risk appetites. The investment horizon for Sector/Theme funds should be more than three years and allocation 10-15% of the investment portfolio.  Investors should also preferably opt for the systematic investment plan or the systematic transfer plan routes where the risks are reduced by spreading out the investments over a longer time horizon.

http://economictimes.indiatimes.com/opinion/interviews/Auto-PSU-banks-to-stay-ahead-Rajat-Rajgarhia--Motilal-Oswal-Securities/articleshow/6751130.cms 

Asset allocation is the KEY

As we near the market highs, it is time to rebalance and review the asset allocation of the investment portfolio.  Rebalance for profits in Equity, Gold.  Review the portfolio for non performing investments. Consider booking profits in Equity Investments more than 1 year old as they are tax free.  Invest through SIP/STP with a 3-5 year horizon in funds with a superior risk adjusted performance.

http://economictimes.indiatimes.com/quickiearticleshow/6726960.cms

Alternative Investments in India

As we near the market highs, it is time to rebalance and review the asset allocation of the investment portfolio.  Investors can consider investing upto 10% of their investment portfolios in alternative investments with a horizon of 3 - 5 years atleast.  One can participate through Gold ETF’s, Private Equity Funds, Real Estate Funds, Structured Products, Overseas Funds, Commodity Exchanges. 

http://economictimes.indiatimes.com/quickiearticleshow/6733521.cms