An open-ended equity scheme that aims to generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities including equity derivatives in the Indian and international markets. The scheme intends to invest up to 30% of the portfolio in foreign stocks in the Asian region (except Japan).
Investment expert Sandeep Shanbhag says, “Accessing foreign markets, especially through a mutual fund of high pedigree like Fidelity is great diversification for Indian investors hitherto being fed a diet rich only in Indian stocks.”
On the flipside, advisor Hemant Rustagi feels, “Since the fund would largely be focusing on Asian markets, it would not truly provide diversification that one could achieve through an international fund.”
However,Ashu Suyash Managing Director and Country Head, Fidelity Fund management clarifies, “The fund manager is expected to have a focus on the Asia-Pacific region but the fund is not limited to investing in Asia-Pacific equities only. The fund manager has the flexibility to invest in other markets depending on the opportunities available.”
“However, as the Fund Manager of Fidelity International Opportunities Fund, Rajesh Singh, has said, Asia is going through a growth phase and offers a wide set of opportunities for stock picking in markets, some developed (like Hong Kong, Singapore and Australia) and others emerging (Korea, Malaysia, etc.). So the focus currently will be on investing in Asia-Pacific equities”, she added.
Tax Restrictions:
(a) “The Income Tax Act bestows tax benefits only to a fund that invests at least 65% in domestic Indian equity. Till that changes, FIOF and similar schemes will have to limit their exposure to foreign equity to 35%”, says Sandeep Shanbhag.
Ashu Suyash adds, “The structure of the product is constructed to make the most of current regulations pertaining to overseas investing. Plus, with 65% in Indian equities, investors will enjoy the prevailing tax benefit of long-term capital gains applicable to all Indian equity funds. However, if these tax laws were to be amended in future, the fund's offer document has enabling provisions to make changes in the investment pattern.”
(b) “The other aspect that needs a little clarity is taxation of foreign investments for the scheme. It is the Indian Income Tax Act that exempts the income of a mutual fund from domestic taxation. However, FIOF's investments in markets abroad will be subject to tax incidence as per the rules of the foreign markets and this will somewhat eat into the returns of the scheme”, says Shanbhag.
However, he adds, “On balance, the multi-country portfolio diversification that FIOF offers far outweighs the additional taxation, if any.”
Limit of $150 mn for Global Equity Investment:
“SEBI regulations mandate that a mutual fund can invest only up to a maximum of $150 million in global equities. Though there have been some changes ushered in by the credit policy announced on the 24th of April, these are just announcements yet and the laws are yet to be passed. $150 million roughly works out to around Rs 650 crore which in turn could be around 30% of the funds intended to be mobilized in the NFO”, says Shanbhag.
However, he adds, “That being said, as time passes, regulations will only be relaxed and it is hoped that the scheme will adapt to the relaxed regulations.”
Performance of Fidelity’s existing schemes:
Fidelity's maiden equity offering in India - Fidelity Equity Fund launched in April 2005 and the more recently launched Fidelity Special Situations Fund (launched in April 2006) and Fidelity Tax Advantage Fund (launched in January 2006) have a four star rating by moneycontrol.com
Shanbhag says, "The experience and capacity of Fidelity as a fund house is evidenced from its performance even in the Indian market to which it is a late entrant. The flagship Fidelity Equity Fund has been amongst the top performers consistently and the Special Situations Fund is also shaping up well."
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