Which international mutual fund will have the lowest correlation with Indian equities and offer reasonable safety and upside in the long term?
- Swaminathan Subramaniam
Most international funds have very low correlation with the Indian market simply because they are in different geographies with different dynamics. Therefore, they tend to be very differently correlated. But we find that a lot of day-to-day movements in the market are governed by actions of investors globally. Something happens in the US and our market also follows that trend. So, in that sense, when there is a market decline, we usually see that markets decline all over the world. Given this, market movements may be related, but in a fundamental way, those companies are very different. Therefore, I would say that they are not related.
To answer your question as to which fund will have reasonable safety and upside in the long term, yes, we can expect upside in the long term. With regard to reasonable safety for equity investments, just reminding you of what used to be hurriedly said on the television screen that mutual funds or equity investments are subject to market risk. They are not just subject to market risk, I think that the right disclaimer to communicate could be on the following lines - The money that you invest can go down in value and there is an imminent possibility that your principle could be lower whenever you want to redeem it.
We have plenty of funds to choose from in India. But the ones that we have recommended are only Franklin India Feeder Franklin US Opportunities or the NASDAQ 100 fund. Of course, they may look like they are US-domiciled funds but going by the underlying companies, their characteristics or their markets are diverse. When you invest in Apple, it may be an American company but it has its market all over the world. When you look at Microsoft, Amazon, etc., they have very diversified businesses. The top six companies of the NASDAQ 100, which account for a substantial part of that index, are global businesses. So that itself gets you reasonable safety, as their business is making money, growing consistently and can still scale up substantially. So, there is no such investment without a downside, but I think they have substantial upside in the long run.