Friday, 9 October, 2009

Investing in other Emerging Economies

Investing in other Emerging Economies

Financial Experts have often advocated the merits of diversification across not only asset classes, but also across geographies.

However, it is never too easy for a small investor, however well-informed, to go around investing in shares of other countries, though he/she may well be conscious that it is worth taking an exposure to the huge growth prospects of companies based in China, Brazil, Russia, East European countries, Africa, etc.

We have literally thousands of mutual funds offering "so-called" diversification. However, we don't have too many schemes with a focussed play on specific geographies. Recently a fund house has launched a "China fund", which is probably worth exploring. However, it is a fund of funds, and the returns after taking into account expenses and taxes remains an unknown quanitity.

My own suggestion to the smarter fund houses:

  1. Launch country-specific mutual fund schemes investing across market-caps in those specific geographies - DIRECTLY in shares of companies listed in those countries.
  2. Appoint a small team of fund managers who are experts in those countries, but with an experience of not more than 5-6 years. My own guess is that this can't be too costly.
  3. Offer these schemes as "Exchange Traded Funds", duly listed on BSE / NSE - This will provide liquidity to the retail investor while making the AUM relatively less volatile. This will also provide the added tax benefit due to applicability of STT.
  4. Offer only a "Dividend Payout Option" - Follow a policy of taking out money off the table whenever you're sitting on profits beyond a cut-off level. This will probably mititgate the risk of entering a relatively unknown market to a certain extent.

The above suggestion would be of immense value to the retail investors and also add to the AUM kitty of the fund house considerably.

Let's see which fund house takes up my suggestion first!!!



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