The DSP Global Innovation Fund of Fund launched by the DSP AMC is the latest investment on the block that has announced to invest in the international fund category. Diversification in investments is now much sought after as international funds outperformed domestic equity funds. Also, the current market volatility has prompted many Indian investors to park money elsewhere like the foreign markets.
What is this fund about?
Similar to many other overseas funds, this new fund offer launched on January 24, 2022 intends to benefit from the outside fund markets. The subscription for this open-ended scheme will close on February 07, 2022. This newly launched fund of funds (FoFs) will invest in global active and passive funds and exchange-traded funds (ETFs). The latter would put money in innovation and technology-driven companies doing business with a long-term perspective. A recent press release put out by the company on its site reveals how the primary investments would be in six funds, out of which two are passive, thus, making up 30 percent of the portfolio.
The fund house aims to allocate weight to individual funds to the tune of 10-50 per cent. To date, the allotment of funds is based on theme allocation, the market capitalization of the various component companies and geographical location along with possible portfolio volatility and expected returns. However, this portfolio assignment is not fixed and is slated to change with time and market movement. The top ten holdings of this fund would be in semiconductors, software, internet, interactive media and e-commerce.
Restrictions explained
There is a lot of debate surrounding how asset management companies diversifying into overseas funds would invest in the wake of recent wake of regulations by the Securities & Exchange Board of India (SEBI) that limits foreign investments of up to US $1 billion per fund house and US$7 billion for the mutual fund industry. Besides, the SEBI has limited mutual fund schemes from investing beyond the US $ 1 billion in ETFs listed outside the Indian stock market.
Vineet Patawari, Co-Founder & CEO, StockEdge explains, “As per the SEBI rules, the restrictions of $1 billion at the fund level and $7 billion at the mutual fund industry level in overseas markets are excluding investment in foreign ETFs. In the case of investments in foreign ETFs, the amount is capped at $300 million per AMC and $1 billion for the industry. There is quite a runway left in case of investment in ETFs. Initially, this fund will only invest in two ETFs (50 per cent each into the iShares PHLX Semiconductor ETF and iShares NASDAQ 100 UCITS ETF). Later when the $7 billion limit is enhanced, it will invest in four more active mutual funds as per its original design.”
Key aspects of the fund
With around 50 percent of the investment money being allocated to iShares Semiconductor ETF, this fund is more thematic in nature. The basket of funds that this fund aims to invest in has outperformed most other funds even in a rolling market. This underlines a winning streak for the investors who can choose to invest in either a lump sum or in gradual SIPs. Since the volatility of these funds is relatively high compared to the benchmark set by most other funds, it would be wise for investors to stay invested for a prolonged period through SIPs.