International Investing: Overpriced ETFs Are Not The Only Investment Route
The top exchange traded funds prices have surpassed their net asset value by nearly 17% due to the surging demand.
Investors are often advised to diversify their portfolio. Now, there is diversification that can be done within equities by spreading investments across various categories.
There is also diversification that goes beyond Indian equities. Indian investors can access international equities through mutual funds. However, there are some regulatory restrictions in place.
Due to these restrictions, some of the investing routes one can take have been shut down or closed for subscription. As things stand, one of the options where one can invest in international funds are ETFs.
The top exchange traded fund prices have surpassed their net asset value by nearly 17% due to the surging demand.
"The price hike is due to stoppage of issue of units. The unit holders are selling the units that they hold at a much higher price," explained Rohin Pagdiwala, founder of Pagdiwala Investments.
Now, since exposure to international markets is important, one might wonder if paying these soaring prices for the ETFs is justified.
"The value of the fund is the NAV (net asset value) of the fund. You are paying a price that is not fair. One can wait as the NAV and price will converge at some point," said Pagdiwala.
Clearly, the demand is high while the supply is limited. So, what is it that attracts more demand that the supply available?
"For 10 years, the US has outperformed the Indian market. Investors want to have one foot in the US economy. The depreciating Indian rupee gives an edge over Indian returns," said Rushabh Desai, who is the founder of Rupee With Rushabh Investment Services.
Desai recommends a 10-25% international exposure from the overall portfolio. There can also be up to 40% assets that can be used for tactical allocation.
Pagdiwala recommends a 5-10% international exposure, and also specifies that the mutual fund route is easier than the liberalised remittance scheme route as the latter has other complications.
When investing through mutual funds, the overall restriction is a seven billion cap on the industry with a sublimit of one billion cap on individual AMCs. They recommend funds from Edelweiss, Axis, Sundaram and Franklin Templeton.
