This was one of Budget 2003's googlies. Just to jog your memory, the last Finance Act had permitted mutual funds to launch schemes that would invest abroad. The caveat was that only foreign companies that owned at least 10 per cent of a listed Indian company were eligible. While this limits the universe of likely investments, there is still enough maneuvering room to pick some good scrips.
Principal has become the first AMC to make use of this new freedom: the fund house is about to launch 'Principal Global Opportunities Fund', which will invest in stocks of companies listed abroad. Currently, Principal has filed the offer document and scheme is awaiting SEBI approval. The constraint on the universe of companies will mean that, for example, the fund will be able to invest in Unilever Plc or Honda Motors of Japan as these companies hold major stake in HLL and Hero Honda respectively. However it will not be able to invest in Coca Cola or Microsoft as these companies' Indian subsidiaries are not listed. With transnational companies increasingly going in for fully-owned Indian ventures, the list of possible investments is unlikely to grow much bigger than it is now. Of course, it is possible that the Government removes this constraint itself in the future.
One expects that most of the companies the fund will be able to invest in will be US or UK-based. Thus the geographical diversification that one expects from a global fund may not be easy to achieve.
Incidentally, the regulation also stipulates that investment in foreign equity and debt securities cannot exceed 10 per cent of the total assets managed by the fund house as on January 31, 2003. Based on this, Principal Global Opportunities Fund can make an overseas investment of a maximum of Rs 150 crore.
One risk that investors are not used to is that of foreign exchange fluctuations. The time when one could be sure that the rupee would keep declining against major currencies is gone. This brings up the distinct possibility that one's investments could gain in dollars and still decline in rupees. Still, it ought to be interesting to invest a small part of one's portfolio in Principal Global Opportunities and feel one with the world.
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