Is Parag Parikh Long Term Equity Fund the only fund with international exposure? Also, are funds allowed to invest in stocks abroad? The expense ratio of this fund is also very high for its direct plan. Should one consider the expense ratio while selecting a scheme?
- Dayson
Yes. Parag Parikh Long Term Equity Fund is allowed to invest 35 per cent of its assets in stocks abroad. Even in the past, it has been investing a good 20-25 per cent in stocks abroad. There are two-three more such funds with such a provision. Having said that, this particular fund has been investing its assets abroad more consistently.
Investing in stocks abroad is very much legal and within SEBI guidelines. The tax treatment of this fund is also similar to that of other equity funds since taxation rules for equity-oriented funds require investing 65 per cent in Indian equity shares.
Coming to its expense ratio, I would say although 1.5 per cent is not on the lower side, it isn't much expensive as well. Also, Parag Parikh Mutual Fund announced its policy regarding charging expense ratio and made it clear that it would reduce its expense ratio in line with the increase in its assets under management.
However, since SEBI has recently revised its expense ratio guidelines, the fund house should come with a new announcement. So, you must wait for it.
When it comes to whether the expense ratio should be considered while choosing a scheme, I would say that the expense ratio does matter. However, one should not postpone investing just because of a higher expense ratio. Expenses play a much important role in the case of debt funds, as your returns cannot increase much. On the other hand, when it comes to equity funds, your returns can definitely increase at a much higher rate.
To put it in a nutshell, expense ratio does matter as it reduces your overall return. However, you shouldn't base or stop your investing decision because of a 25 basis-point or 50 basis-point higher expense ratio. Investing is what is important even if the chosen fund has a 25 basis points higher expense ratio. But if you end up waiting for one to two year, it can turn out to be a bigger disappointment.
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