Why diversification is the best strategy for now and how to spread your portfolio (2025)

Although Indian equities performed well for about 18 months, they've become volatile recently. Since it's difficult to predict which asset class will outperform, diversification — global investments including themes like AI, semiconductors, electric vehicles, and block chain— remains key, according to Vaibhav Shah, Head - Products, Business Strategy & International Business, Mirae Asset Investment Managers (India). The fund house is now launching Mirae Asset Global Allocation Fund IFSC, an outbound fund from GIFT City.

Edited excerpts:

Currently, global markets are in the midst of huge turmoil and volatility. So, what was the trigger for launching an outbound fund from GIFT City?

The main rationale is diversification. Good investing principles recommend asset allocation across asset classes with low correlation. Since February 1, 2023, Indian investors have been restricted from investing overseas through mutual funds due to regulatory limits, cutting off their global diversification. Although Indian equities performed well for about 18 months, they have become volatile recently. Other asset classes like gold and fixed income have also performed well. Since it's difficult to predict which asset class will outperform, diversification including global investment remains key. Moreover, themes like AI, semiconductors, electric vehicles, and blockchain are gaining global traction, and Indian investors have limited or no exposure to these sectors domestically. US markets,particularly, have shown strong returns, outperforming Indian markets by 5–6 percent in dollar terms over 15 years. Therefore, this fund helps mitigate risk, enables access to global themes, and supports diversified investing.

Could you walk us through the portfolio breakup and structure of the fund?

This is a Category III AIF launched through the GIFT City route. Resident Indians, companies, NRIs, and foreign nationals can invest through the LRS (Liberalized Remittance Scheme) route. The fund’s asset allocation is straightforward: 90–100 percent will be invested in global ETFs and offshore funds. The strategy consists of a core and tactical component. The core, comprising 50–70 percent of the portfolio, focuses on developed markets which is mainly the US, which accounts for 25 percent of global GDP, 65 percent of the MSCI World Index, and 50 percent of global market cap. The tactical allocation, 30–50 percent, will focus on emerging markets like China, Taiwan, and Brazil, and themes such as AI, semiconductors, and electric vehicles. The fund will invest in 3–5 underlying funds and will dynamically adjust allocations based on market conditions, offering flexibility to switch themes or geographies as needed.

How do you see the ongoing geopolitical risks or volatility in emerging markets, including the potential tariff issues with the US?

Global volatility is a reality, especially with geopolitical events and policy shifts. But it’s important to remember how uncertain things looked during the pandemic five years ago. That turned out to be a great time to invest. Many funds have delivered 25–30 percent CAGR over five years if invested during such volatile periods. As Warren Buffett says, “Be fearful when others are greedy, and greedy when others are fearful.” Volatility presents opportunities. To manage this, the fund will follow a staggered drawdown approach of raising capital from investors over a 12-month period rather than in one go. This strategy takes advantage of market dips, allows for cost averaging, and gives themes time (at least three years) to play out. Investors need a long-term (3–4 year) horizon, and the staggered approach helps manage near-term market turbulence.

From an investor perspective, what are the advantages for Indian investors who invest in your GIFT City fund?

The primary advantage is access to global markets, which has become difficult due to mutual fund restrictions. Now, via GIFT City and the LRS route, Indian investors can invest globally through three ways: directly buying global stocks/ETFs, using offshore brokers, or investing through a fund like this. The first two routes are complicated—high transaction costs, custody fees, taxation issues, currency conversion risks, and the challenge of choosing the right stocks or funds from thousands of options. In contrast, investing via a GIFT City AIF offers ease, lower complexity, and professional fund management that can dynamically shift allocations. It’s a much simpler and more efficient method for Indian investors to gain global exposure.

What is the minimum ticket size for this AIF, and is this product intended to replace mutual funds for Indian investors?

The minimum ticket size is $150,000, the standard for Category III AIFs. This fund isn’t meant to replace mutual funds but to complement them. Even in the mutual fund space, some investors have invested crores in funds like the FANG or Heng Seng Tech ETFs. The AIF route caters to serious, knowledgeable investors who are better equipped to handle volatility. Eventually, retail mutual fund products may also be launched via GIFT City with lower ticket sizes. But currently, the AIF structure is a suitable starting point.

What is holding back the launch of more outbound funds in GIFT City?

Two main reasons. First, some fund houses (especially Indian AMCs) lack expertise in managing global portfolios and are thus more comfortable with inbound funds that focus on India. Secondly, launching funds takes time. Mirae Asset, for instance, launched its inbound fund 8–9 months ago and is now launching outbound funds. Mirae’s global presence in 19 countries, with over $250 billion in assets under management, allows it to manage both inbound and outbound strategies effectively. Not all Indian AMCs have this global infrastructure, so they focus on what they know best i.e. India.

How do outbound funds through GIFT City work with distributors? Are there differences compared to domestic distribution?

Outbound funds mainly target Indian resident investors, a segment most distributors already serve. Distributors can either be physically present in GIFT City or operate outside it. Those in GIFT City must follow the IFSCA’s code of conduct. Those that are outside must also comply with regulatory standards, in coordination with the AMC. While a physical presence isn’t mandatory, many distributors are exploring setting up GIFT City offices to benefit from the ecosystem. For distributors in GIFT Citythere are tax incentives. Businesses set up in GIFT City can avail a tax holiday for 10 out of 15 years on their business income. However, this benefit applies only if the distributor is physically present in GIFT City. For those outside, the main incentive is the ability to offer their clients access to global investment opportunities via a streamlined platform.