Global funds are a category of Indian mutual fund schemes that invest in foreign securities and/or foreign funds. Most of them were launched during 2007 and 2008, the period when foreign funds had become a fad. When they were launched, Moneylife had pointed out that these funds were marketing gimmicks. Our advice was to stay away from these funds.

Global funds offer diversification which an Indian investor may not be able to buy by just investing in domestic schemes. However, funds that put your money in other countries don’t necessarily offer much diversification. In fact, markets in countries around the world have been moving in sync. We analysed the returns of global funds from January 2009 to September 2012 comparing them with those of the Sensex and found that the performance of top few schemes is highly correlated with a correlation coefficient of nearly 0.80 (correlation coefficient of 1 is fully correlated and -1 is negatively correlated). The average correlation is also relatively high at 0.67.

There will always be one or two schemes—in any category, including global schemes—that do well—whether out of luck or skill or because they are investing in commodities that are temporarily on a bull run. But there is little logic in investing in global funds. As a category, they are not worth the risk. Global funds have accumulated assets of nearly Rs5,000 crore. Retail Indian investors who believed that investing in global funds will yield higher returns would probably regret having invested in these schemes. Only a few schemes have been able to do better than the Sensex in the period of our analysis.