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Another International Bond Fund

After Franklin Templeton, Deutsche Mutual Fund is planning for an international bond fund. This will be a five-year closed-end bond fund that will invest in overseas fixed income securities

The Indian mutual fund industry is going global, although at a slower pace than one had hoped for. After Templeton, Principal and UTI, the latest to join the global bandwagon is Deutsche Mutual Fund that is waiting for SEBI's clearance for its International Bond Fund. This will be a five-year closed-end bond fund that will invest in overseas fixed income securities. Since Deutsche International Bond fund will be a closed-end scheme, the units will be listed on one of the Indian stock exchange for liquidity purpose.

This will be second such bond fund in India after Franklin India International fund. However, there's a difference between the two. While Franklin India International is a sub-fund, which invests in units of Franklin US Government Fund, the Deutsche International Bond Fund will not be a sub-fund. Instead it would directly invest in foreign securities. Moreover, while former is an open-end fund, the latter will be a closed-end fund.

Currently, Indian mutual funds can invest in those countries, which have fully convertible currencies. And the debt instruments should command highest rating (foreign currency credit rating) by accredited/registered credit rating agencies. The funds can also invest in government securities where the countries are AAA-rated, overseas mutual funds, which invest in the aforesaid securities or are rated as mentioned above and are registered with overseas regulators. As per current rules, mutual funds can invest in foreign securities up to 10 per cent of the net assets as on January 31 of each relevant year subject to a maximum of $ 50 million.

The biggest advantage of such type of funds is international diversification. However, apart from normal market-related risks, there's an additional currency risk. The returns from international investing could be heavily influenced by currency movements and can result in higher volatility. When the rupee is appreciating, returns from foreign investing will be reduced and vice versa. Still, having exposure to international markets increases your opportunity to make gains and reduces your risk in a given market. Hope Deutsche gets the SEBI nod soon so that it opens new avenues for Indian investors.