The importance of diversification cannot be overstated. It is the single biggest tool available with us to manage investment risks. As an MFD, you would likely be doing it for your clients to safeguard their portfolio against adverse business and market cycles.
However, the diversification is often limited to domestic stocks and businesses, which should not be the ideal approach. Portfolios should contain some elements, which do not get impacted to country-specific adversities.
This can be done by allocating a portion of the portfolio to international funds. And the best part is that it does not benefits your clients alone. There are several benefits for you too.
Here's how MFDs can benefit by recommending international funds to their clients:
Wider range of offerings
The variety in mutual funds is its biggest advantage. The range comes in handy while designing solutions to various investment goals. Including international funds in your 'recommendation bucket' can help you tailor better portfolios for your clients.
Additionally, there's a rising interest for international securities among the younger generations. To garner such clients, you should be well versed with international funds and ready to recommend it to them whenever the need arises.
Reduce country-specific risks to your earnings
When investments go down, investors are not the only ones who suffer. Distributors too take a hit on earnings. This is why it's important for MFDs to diversify their assets under advisory.
By offering international funds, assets under advisory (AUA) gets diversified in the true sense. It reduces the risks posed by country-specific factors like geo-political events and negative macro & micro economic trends.
You also benefit when any of the international markets you recommend enter high growth stage.
Manage currency volatility risk for clients
Historically, the Indian rupee has been depreciating against US dollar. And the trend may continue in the future. As a result, the money we hold in Indian assets lose value over time due to currency depreciation.
This becomes problematic especially when an investor has a goal that requires payment in a foreign currency, such as overseas vacation or foreign education.
Investing in international funds is a solution to this issue.
Moreover, the international investments provide two-way returns — growth in value of assets and depreciation of rupee.
However, the returns can also suffer if rupee appreciates against the currency of the market where the sum is invested.
Therefore, by recommending international funds, you can protect your clients’ portfolio from risks posed by currency volatility.
