Mumbai: Even though international equity funds are not doing well compared to their domestic counterparts, fund houses are still bullish on such products and have aggressive plans to launch more global equity products going forward.
These fund houses believe that the differential tax treatment to global equity funds was responsible for the muted growth.
As of now, asset under management (AUM) of equity funds for the Rs 12-trillion domestic MF industry stands at Rs 3.65 lakh crore.
Out of this, the AUM of the international equity funds or fund of funds is only Rs 2,469 crore, being run by 16 fund houses.
American fund houses like JP Morgan AMC, which is the largest with over Rs 700 crore in international equity funds, DSP Blackrock AMC, JP Morgan Asset Management etc are the leading players in the international equity funds space.
Currently, investments in domestic equity funds are taxed at 15 percent if redemption takes place within a year, but no tax is levied in case redemption happens after one year of investment.
However, in case of international equity funds which are treated as debt funds for taxation purpose, they are taxed at 20 percent with indexation in case of redemption within three years of investment.
American fund house JP Morgan AMC currently has total AUM of Rs 16,500 crore and out of that Rs 2,800 crore are into equities.
However, its exposure into international equity fund is at Rs 700 crore.
"We do believe that principal reason behind international equity funds not picking up currently is the differential tax treatment," JP Morgan Asset Management managing director and chief executive
Nandkumar Surti told PTI, adding, "we keep giving representation on the issue to the government seeking a level playing field.
"DSP Blackrock Investment Managers is one of leading players globally which is active on the international equity fund space.
It runs global equity funds in segments like gold, mining, energy, agriculture and it has recently got global equity allocation fund as well.
Total AUM of DSP Blackrock is at Rs 35,437 crore and Rs 13,436 crore of this were equity funds.
However, the AUM of its international equity funds is only Rs 457 crore.
Showing bullishness, DSP Blackrock has applied for three more global equity funds with Sebi and is hopeful of getting approval for global healthcare equity fund shortly.
"We have filed for three more global equity funds with Sebi and are hopeful of getting approval for our global healthcare equity fund shortly," DSP Blackrock Investment Managers executive vice president Ajit Menon told PTI on the sidelines of a Cafe Mutual event here over the weekend.
"I think the global equity funds are meant for high net-worth individuals as it provides them a kind of hedging against their rupee investments," Menon said.
Another American fund house, JP Morgan Asset Management, which has five international equity funds in its portfolio in the country, is also planning to apply for two more such products in future.
"Currently, we have five international equity funds and are planning to come up with two more soon," Surti said, adding that the principal reason for international equity funds not picking up is the differential tax treatment.
"We keep giving representation on the issue to the government, seeking a level-playing field," he added.
Reliance Capital Asset Management Company already has an international Japan Equity Fund and is all set to launch Korea Fund shortly.
"We already have a Japan fund in our bouquet of offerings and are planning to launch Korea fund on similar lines shortly," Reliance Capital Asset Management Company president and chief executive Sundeep Sikka said.
"These are different cycles. Right now, India-based equity funds are doing well because Indian markets and Indian funds are doing far better than that of global markets.
"However, it's a matter of cycle and I do believe that Indian markets and equities may not give high returns for a long period of time," he added.
ICICI Prudential AMC has two global equity funds.
One is US Blue Chip fund which invests in global bluechips and the other being global stable fund which provides investors exposure to the US or European markets.
"It's all about diversifying your portfolio. Suppose one needs funds in dollar denomination to finance one's kid studying abroad, then he will essentially go for global equity fund," ICICI
Prudential Mutual Fund managing director and chief executive Nimesh Shah said.
ICICI Prudential AMC, having an AUM of Rs 1,58,130 crore with equity AUM of Rs 54,640 crore, has two global equity funds worth Rs 253 crore.
