As a mutual funds investor, you have a plethora of options to choose from. The mutual funds arena is similar to a global marketplace. We can invest in economies, sectors, themes, capitalisations, businesses, debt and more.
Mutual funds can help you break the portfolio limiting cycle and can help you expand your diversification as well as focus points.
Regional funds can stand out as a unique avenue for targeted investment.
But what exactly are they, and how do they fit into your investment strategy?
Let us learn more about the intricacies of regional funds and demystify their operation and explore their potential.
The Foundation of Mutual Funds
Let us begin by briefly understanding what mutual funds are.
Mutual funds are simply a basket. They are a basket of securities or asset classes like stocks, debt, commodities (like silver and gold), currency, other mutual funds and more. We invest in a mutual fund through a mutual fund scheme. Thus, in its essence they are a diversified pool of securities.
Furthermore, these investment instruments are professionally managed. These fund managers, with their expertise and experience, oversee this allocation, aiming to generate income or capital gains for the investors. They can do this by mirroring an index (passive mutual funds) or by trying to beat it (active mutual funds). The fund’s portfolio can adhere to a structured approach, reflecting the investment objectives outlined in its prospectus.
What is a Regional Fund?
Building on this understanding, regional funds can be called as a specialised form of mutual funds.
The defining characteristic of these funds can be their focus on a specific geographical region. Instead of spreading investments across a global landscape, regional fund managers can concentrate on securities from a particular area, such as Asia, Europe, or Australia.
Typically, it can be said that a regional fund’s portfolio boasts a diverse collection of companies located within and operating from the chosen region. However, some regional funds may adopt a more niche approach, concentrating on a specific sector within a region’s economy.
For example, a fund focusing on Latin America but solely investing in its energy sector would still qualify as a regional fund.
The Mechanics of Regional Fund Operations
In terms of operational mechanics, regional funds can mirror the fundamental principles of all mutual funds.
They can serve as investment vehicles, aggregating capital from numerous investors to invest in a variety of securities. These securities can encompass stocks, high-yield bonds, investment-grade bonds, and leveraged loans.
While some regional funds may specialise in a single asset class, such as stocks, others might offer a diversified mix of asset classes. Professional mutual fund managers are responsible for directing the fund’s investments. These fund managers strive to achieve capital gains or generate income, or both, depending on the fund’s objectives.
It is worth noting that some investors might mistakenly equate emerging markets funds with regional funds. But they both are different.
While emerging markets funds do invest in specific geographic locations, they do not confine themselves to a single region. They often invest in a wide range of countries across Africa, Southeast Asia, Latin America, and emerging economies like India, Russia, and China.
Rationale Behind Regional Fund Investing
Why do investors choose to allocate their capital to regional funds?
The primary motivation can be to gain diversified exposure to a specific geographic area that they believe might outperform the average market. For many, regional funds can offer a practical solution to achieving diversification within a particular region, especially when they lack the capital to invest in a broad range of individual securities.
Furthermore, the expertise of professional fund managers can eliminate the need for individual investors to meticulously select holdings.
So, if you are looking to start SIP now and you can diversify your portfolio. For such diversification regional funds might be a suitable option. Mutual fund returns can be impacted by the overall health of a region, making your selection important.
Forms and Structures of Regional Funds
Like other mutual funds, regional funds can take on active or passive forms.
Active regional funds are managed by portfolio managers or teams who strive to outperform the relevant regional index.
Conversely, passive regional funds aim to mirror the performance of a specific regional index, typically with lower fees (TER – Total Expense Ratio).
Most regional funds primarily invest in publicly traded companies. However, some active funds may include a limited number of investments in private companies. Due to the specialised focus and potentially higher operational costs associated with regional funds, investment managers may charge higher fees.
Regional Funds vs. International Funds
It is crucial to differentiate between regional funds and international funds to infer which one’s better for your financial goals and risk appetite.
While some regional funds may fall under the umbrella of international funds, the two are not synonymous. International funds can provide a broader exposure to regions outside of a specific domestic market, or may focus on a single foreign country.
For example, international investment-grade debt funds offered by various investment managers can provide exposure to bonds outside of the domestic market.
Furthermore, regional funds should not be confused with emerging markets funds. While these funds share some similarities, they differ in their scope. Regional funds can focus on a defined geographical region, while emerging markets funds can invest in developing economies across various continents.
7 Key Things to Know About Regional Funds
- Geographic Focus: Regional funds concentrate investments in a specific geographical region.
- Diversification: They offer diversified exposure within a chosen region.
- Professional Management: Experienced fund managers oversee the fund’s investments.
- Active or Passive Management: Funds can be actively or passively managed.
- Potential for Higher Fees: Specialised focus may lead to higher fees.
- Not the Same as Emerging Markets Funds: Regional funds are distinct from emerging markets funds.
- International Fund Component: Some regional funds may fall under international funds.
Regional Funds and You
For investors in mutual funds India, regional funds can present an opportunity to tap into the growth potential of specific geographic regions. SIP investing and mutual fund SIP options can make regional funds accessible to a wide range of investors. So, if you are interested in passive investing with mutual fund, you might find index based regional funds a better option for your portfolio.
Wrapping up!
Regional funds can offer a unique avenue for investors seeking targeted exposure to specific geographical regions. Investors can make informed decisions about incorporating these funds into their portfolios by understanding their operational mechanics, distinctions from other fund types, and the factors that influence their performance.
Whether you are seeking to diversify your holdings or capitalise on the growth potential of a particular region, regional funds provide a valuable tool for navigating the global investment landscape. As investors, you need to remember to conduct thorough research, consider your appetite for risk, and consult with a financial advisor before making any investment decisions.
Wrapping up!
Regional funds can offer a unique avenue for investors seeking targeted exposure to specific geographical regions. Investors can make informed decisions about incorporating these funds into their portfolios by understanding their operational mechanics, distinctions from other fund types, and the factors that influence their performance.
Whether you are seeking to diversify your holdings or capitalise on the growth potential of a particular region, regional funds provide a valuable tool for navigating the global investment landscape. As investors, you need to remember to conduct thorough research, consider your appetite for risk, and consult with a financial advisor before making any investment decisions.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: Learn about the F&O craze in India
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans of Mutual Funds and Fixed Deposits and start investing today.
AREVUK Advisory Services Pvt Ltd | SEBI Registration No. INA200005166
DISCLAIMER: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investments in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory.
