The Kotak Global Emerging Market Overseas Equity Omni FOF delivered a 2.1% gain in the past month, outperforming other overseas funds. However, the Motilal Oswal Nasdaq 100 FOF maintains a stronger track record over longer periods like one and three years. Investors should focus on long-term performance and understand the specific risks, such as currency fluctuations and tax implications, before choosing an international fund.
What Happened
The Kotak Global Emerging Market Overseas Equity Omni FOF has recorded the highest returns among overseas fund-of-funds (FoF) schemes over the past month. According to latest data, the fund achieved a 2.1% gain, putting it ahead of other prominent funds in the category, such as the PGIM India Global Equity Opp FoF (1.3%) and the Motilal Oswal Nasdaq 100 FOF (1.2%).
This data reflects a snapshot of short-term performance, which can be influenced by the specific markets or sectors the funds invest in, as well as recent currency movements between the Indian Rupee and global currencies.
The Longer-Term Reality
While the Kotak fund has led in the one-month window, investment horizons matter significantly for international funds. Data over longer periods, such as six months, one year, and three years, shows a different leader. The Motilal Oswal Nasdaq 100 FOF has demonstrated higher returns over these extended timeframes, including a three-year compound annual growth rate (CAGR) of 40.3%.
This difference highlights a core principle in mutual fund investing: short-term performance spikes are common and do not always indicate future success or long-term strength. Funds tracking different indices or regions will perform differently depending on market cycles.
Understanding International Fund Risks
For Indian investors, overseas funds provide a way to gain exposure to global markets, but they come with specific factors that are not present in domestic Indian funds:
- Currency Risk: International funds invest in foreign assets. If the Indian Rupee strengthens against the currency in which the fund invests (like the US Dollar), it can negatively impact your returns. Conversely, a weakening Rupee can boost returns.
- Taxation: Unlike domestic equity mutual funds, which are taxed at lower rates if held for a certain period, international funds are generally taxed as debt or "non-equity" funds in India. This means gains are added to your income and taxed at your applicable slab rate, regardless of the holding period.
- Regulatory Limits: The Reserve Bank of India (RBI) and SEBI set limits on how much Indian mutual funds can invest in overseas markets. When these limits are reached, fund houses may stop accepting new investments or fresh subscriptions, affecting liquidity for investors.
What Investors Should Track
When looking at international funds, investors should focus on the fund's investment mandate—what kind of companies or indices it tracks—rather than just the most recent monthly return. A fund that tracks the US technology sector (like the Nasdaq 100) will behave very differently from one that tracks broad emerging markets or specific global sectors.
Before investing, consider whether the fund's geographic or sectoral focus aligns with your long-term financial goals and your appetite for the added volatility that comes with global markets.