Choosing an international fund for my portfolio

Since quite some time I had been thinking about adding an International fund to my mutual fund portfolio, to give it a global edge :)
An international fund provides the much needed diversification to your portfolio. Just to quote an example say a scam like Satyam need not necessarily have an effect on stock markets in other countries. Also the economic situation may not be equally bad in all countries at the same time. Right now most of the developed world is in recession, but developing countries like India/China are still growing ( albeit, at a slower pace ). This story may reverse in future. So there is a need to diversify globally.

But there are some risks also associated with global funds:
1. Foreign exchange risk: Say Rupee appreciates heavily against the US dollar then the investors may actually end up losing money in this fund, even though their holdings may have appreciated in US dollar terms.
2. Lesser tax-benefits: A mutual fund has to invest 65% or more of its assests in the Indian equity market to qualify as an equity-oriented scheme. Since global mutual funds invest in the international market they are not eligible for tax-benefits offered to equity mutual funds in India ( like tax-free dividends, zero tax on long term capital gains ).
3. Fund-manager risk: The fund manager may not be well-versed with the international markets, which can be a reason of worry for the investors.

When I went about looking for an international mutual fund, the following were my requirements:
1. Well diversified global equity fund
2. No sector or country bias, no developed/developing economy bias.
3. Low fees
4. Minimum exposure to India, as I already have my Indian equity portfolio in place.


Let's see what are the available options and choose the best out of them:

Franklin India International : This is not an equity fund, but a debt fund which invests in US govt. securities. Verdict: NO

Kotak Global Emerging Market : As the name suggests this is a fund that invests in the emerging markets ( India, China, ME, South America ). And also this acts as feeder fund where the money invested is routed into the TRP SICAV Global Emerging Equity Fund, which means two level of fees. Verdict: NO

Principal Global Opportunities : This again is a feeder fund for PGIF Emerging Markets Equity. Same comments as for the above Kotak fund. Verdict: NO

Fidelity International Opportunities : Has very little international exposure. Maybe the fund manager is trying to make this fund get the tax benefits of equity-oriented mutual funds in India by holding atleast 65% assets in Indian stocks. Verdict: NO

ICICI Pru Indo Asia Equity : Fund objective states that it will concentrate on Asia. Its holdings also show that it holds around 65% assets in Indian stocks ( presumably, for tax-benefits ) and the rest in IOF Asian Equity Fund for exposure to Asian stocks. Verdict: NO

Tata Indo Global Infrastructure : The fund objective has a sector-bias and will primarily invest in Infrastructure companies. Just like the ICICI Pru Indo Asia Equity this has too much of India exposure. For global exposure it currently relies on two funds viz, INVESCO Asia Infrastructure and Credit Suisse Emerging Market which displays an Asian/Emerging market bias. Verdict: NO.

Birla Sun Life Commodity Equities : Birla Sun Life has three international commodities fund, but since they have a sector bias my verdict is no. There are three different variants of this fund global agriculture , global multi commodity & global precious metal. Verdict: NO

Kotak Indo World Infrastructure : Sector-bias, plus too much of Indian holdings. Verdict: NO

Birla Sun Life International Equity : This has two plans. Plan A invests upto 100% percent in international equity and has S&P Global 1200 as the benchmark. Plan B invests atleast 65% in Indian markets with the rest going to International markets. Since I am looking only for a global fund, Plan A suits my need. Except for the fact that the fund expenses are a bit on the higher side ( around 2.34% ) everything else is almost perfect. It is well diversified across sectors and countries.

Hence from all the available options presently, I believe Birla Sun Life International Equity Plan A is the only one that suits my need. I wish there are more global funds from other fund houses as well. I don't know if this is the right time to start investing in the international markets, so I am opting for an SIP.

Disclaimer: This is not a mutual fund recommendation service. The above analysis was done only for personal use by the author. Do consult a financial advisor before making any investment decisions.