HDFC Mutual Fund recently rolled out a new fund offer (NFO) for an MNC fund. The offer opened for subscription on February 17, and will close on March 3, 2023.
The investment objective of the scheme is to provide long-term capital appreciation by investing predominantly in equity and equity-related instruments of multi-national corporations (MNCs). However, the fund house makes it clear that there is no assurance that the investment objective of the scheme will be realised.
The scheme's performance will be evaluated against the NIFTY MNC TRI (Total Returns Index) benchmark.
This is vital to mention here that there are already some fund schemes that fall in this category that include SBI Magnum Global Fund, UTI MNC Fund, Aditya Birla Sun Life MNC Fund and ICICI Prudential MNC Fund.
Here, we dig deeper to explore whether it is rational to invest in this new fund offer.
What investment advisors say
Some wealth advisors opine that it is not recommended to invest in an MNC fund per se because like other thematic funds, they are highly risk-prone.
“We generally have a negative view on thematic funds. These mutual fund schemes work only when their story works out. One has to see how credible their hypothesis is,” says Ravi Saraogi, co-founder of Samasthiti Advisors.
One might argue that the HDFC MNC Fund will invest in a number of companies across sectors and industries, thus offering the benefit of diversification.
On this, Saraogi says that for any investor who has already invested in a large cap fund — there is no merit in getting an additional exposure to “multi-national stocks”.
“Moreover, even after investing across sectors and industries, all the MNCs become vulnerable to one sweeping changes such as a new government policy, a significant change in the exchange rate, so on and so forth,” he adds.
He also admits that most investors consider MNCs as organisations that adhere to high standards of corporate governance and definitely more stable. Still, he is not particularly excited about a fund focusing on MNCs alone.
Expressing her views along the similar lines, Sridevi Ganesh, co-founder of Chamomile Investment Consultants, says: “Although it is a good sector to watch out for as investors get interested in it when the market faces deep correction, but I would not personally recommend this at this point of time since we are not sure as to which direction will the market take: upward to downward?”
“Also, in the past 2 to 3 years, these funds have not delivered decent returns. And moreover, if someone wants to get an exposure to multi-national stocks, one can — instead — buy large-cap or flexi-cap schemes. These schemes already have a decent exposure to most MNC stocks,” she adds.
Sridharan Sundaram, SEBI-registered investment advisor and founder of Wealth Ladder Direct, says that the current timing is not right for investing in multi-national stocks.
“We have heard a lot about the possibility of recession in the US and Europe in the near future. So, entities that are based out of the Western world stare at inflation and growth-related issues. However, one can still consider investing in the India-based MNCs,” says Sundaram.
About the allocation to such a scheme, he emphasises that one should not allocate more than 5 percent of their overall portfolio.
(Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.)