The fund has done better than the Sensex over 1-3 years but it is too short a period to extrapolate
BNP Paribas Mutual fund, recently filed an offer document with the Securities and Exchange Board of India (SEBI) to launch an open-ended overseas fund-of-funds scheme—BNP Paribas Russia Fund. The fund will invest 90%-100% of its assets in the units of its overseas fund—BNP Paribas L1 Equity Russia. The remaining units will be invested in debt instruments. The scheme will be benchmarked against the MSCI Russia 10-40 index, which is also the index for the overseas fund.
There have been many such funds launched in the past, inviting Indian investors to park money in their overseas fund. Apparently, most of these overseas funds do not have a long and proven track record of good performance. Moneylife has constantly been writing about such funds in the past years. These funds are pure fads. (Read: Avoid HSBC Brazil Fund new fund offer)
Same is the case for the Russia fund. Though the fund may seem to have performed better than the Sensex, the performance has just been mapped over a four-year period. The returns have shown greater volatility and just about managed to outperform its benchmark in just two periods out of four. In the last one-year period ending 30 November 2011 the overseas fund has returned -10.56% whereas the Sensex has returned -17.29% and its benchmark returned -5.59%. The fund itself has been launched in March 2007, so its long-term performance cannot be judged. Its performance though much better than the Sensex in the one-year, two-year and three-year period, it has just about managed to match the benchmark on the other two occasions. Apart from this, the variance in returns is a clear indicator of how volatile the returns have been for the fund. And it has been clearly much more volatile than the Sensex in the past four years.
Chasing returns is not for the average retail investor especially when it comes with high risk. The return of the fund is highly correlated with the Sensex. Thus investors do not get any added benefit if they try to diversify their risk.
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