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Mutual Fund houses make a beeline to launch euro feeder funds

After a series of US funds launched last year, fund houses are now looking to launch overseas…

After a series of US funds launched last year, fund houses are now looking to launch overseas feeder funds that invest in Europe.

Deutsche Asset Management India, JPMorgan MF and Religare Invesco MF are the three fund houses that have launched their overseas fund of funds, which will invest in the European market.

Religare Invesco Pan European Equity Fund is open ended fund of funds (FoF) scheme that will invest in the underlying $3.03 billion Invesco Pan European Equity Fund domiciled in Luxembourg. The underlying fund has given one-year returns of 36.39% (in euro terms) against 20.31% given by its benchmark MSCI Europe. DWS Top Euroland Offshore Fund is an open ended overseas FoF benchmarked on Euro Stoxx 50. The underlying fund has given 1-year CAGR returns of 49.91% against benchmark returns of 42.88% as on December 30, 2013.

JPMorgan Europe Dynamic Equity Offshore Fund is an open ended FoF that will invest predominantly in JPMorgan Funds ? Europe Dynamic Fund, an equity fund, which invests in an aggressively managed portfolio of European companies. The underlying fund has given returns of 33.89% in CY13 against about 20% given by its benchmark MSCI Europe Index.

?With economic indicators showing a positive trend, data points reversing and signs of developed Europe being on a growth trajectory, we believe it?s just the right time to offer this fund to Indian investors. We believe developed Europe is at a juncture where US was in 2011 and there couldn?t have been a more opportune time to seize this opportunity given the current momentum within Indian investors,? said Nandkumar Surti, MD & CEO, JPMorgan AMC, India.

According to a Deutsche AMC note, the economic scenario in Euroland, comprising 18 European countries, suggests that the fiscal drag is easing, while early indicators are signaling strong improvement in growth. ?Corporate earnings are significantly below previous peak, offering a lot of recovery potential. Compared to the US equity markets, cyclical adjusted Euroland company PEs are at low levels. These indicators seem to suggest a potential upside for Euroland,? said the note.

The major European indices ? CAC, DAX, FTSE 100 and Euro Stoxx ? were up between 16% and 30% in CY13 in dollar terms. In contrast, the Indian benchmark index Sensex gave returns of -3.47% in dollar terms in CY13. The Euro area posted GDP growth of -0.3% in the third quarter of 2013 compared with -0.7% for the year-ago period.

Overseas funds are typically sought after by high networth individuals seeking geographical diversification. ?Diversification is one of the basic building blocks for a solid portfolio. As different markets perform differently, diversifying your investments across markets helps to reduce risk and enhance portfolio performance. Given the low correlation between Indian and European equity markets the Religare Invesco Pan European Equity Fund will help investors achieve diversification by investing in European companies, which are available at attractive valuations,? said Saurabh Nanavati, MD & CEO, Religare Invesco MF.

Experts advise investors to consider the taxation aspect before investing in these overseas funds as they are considered debt-oriented and not equity funds. For debt funds, short-term capital gains are taxed as per an individual’s applicable slab rates, while the tax for long-term capital gains is 10% without indexation or 20% with indexation, whichever is lower.

The Europe-based feeder funds from India invest into their parent company?s fund, which is domiciled in Europe. Investors can invest in rupees, which is then converted into euro. The euro are re-converted into rupees during redemption.

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First published on: 17-01-2014 at 03:35 IST
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