ICICI Prudential Mutual Fund recently announced the launch of the ICICI Prudential Innovation Fund as a part of its new fund offer (NFO) programme. This open-ended thematic fund will help inclined investors to benefit from putting money in equity and equity-related securities of companies and units of global mutual funds/ETFs that can benefit from innovation strategies and themes. Most investors prefer the risk of investing in sectoral funds as they aim to buy stocks of companies relying on innovation-based products and services.
Speaking on the scheme launched on April 10, 2023, Chintan Haria, Head - Investment Strategy, ICICI Prudential AMC said, “As countries look to become increasingly self-sufficient in terms of resources, innovation as a theme is likely to do well going forward globally and domestically. With the deployment of 5G technology, a wide gamut of sectors/industries stands to benefit and India already has a robust ecosystem in place for nurturing innovation. This offering an investor will have access to companies involved in product/service/solution-related innovation both in India and overseas. Given that innovation can happen anywhere, our research team will track sector/theme-specific trends.”
The scheme will invest a minimum of 80 per cent of its resources in Indian and foreign companies fostering innovative strategies and themes to serve various sectors and companies across various market capitalizations.
Furthermore, the scheme may invest up to one-fifth of its net assets in American Depository Receipts (ADRs), global depository receipts (GDRs), foreign securities, mutual funds, and exchange-traded funds (ETFs).
Considering what the investments in this fund would be like, should one invest in this fund? Also, what factors must one keep in mind while deciding to allocate money to this fund? These are questions that investors must inquire about before deciding when and where they must allocate their earnings to ensure the quick achievement of their financial goals.
Rishabh Parakh, Chief Play Officer, NRP Capitals said, “Whenever one invests in a mutual fund, the first thing one must check is the risk profile. Out of all the schemes out there, which mutual fund suits best is a pertinent question, especially after looking into which market capitalization it falls into. However, each of these funds is still relatively better than an innovation fund considering how the latter is a sectoral fund. So, only those with a high risk profile must invest in this kind of innovation fund with a sectoral theme. This is because of the increased chances of having a high risk-reward proposition. This implies that the returns can be more but that will come at the cost of entailing a higher risk. Similar funds have been launched in the past."
Parakh added, "The US market had performed in the past couple of years; however, looking at the next 10 years, do we see more opportunities in the Indian market vis-à-vis the American market is a factor that we cannot afford to ignore. Unless you have a risk profile, you may avoid investing in this fund.”
Vasudha Gupta, Finance Lead, CommsCredible added, “The investor should evaluate the objectives and requirements while making any investment. It can be said that today’s era is led by technology and innovation-based industries, hence, investment in these companies can make be a good move but the factors like risk, term and liquidity should also be considered. The portfolio should be diversified enough to compensate the risk involved in these kinds of funds.”
Tanvi Goyal, Founder, Wealth Aware shared, “The scheme will be both sector and market cap agnostic which means that the companies selected can be from any sector and from any market cap. The focus of this fund is primarily on innovation. Although theoretically, this sounds like the ideal scenario to invest in innovative companies, I personally believe that wealth creation through innovative businesses can be very lucrative but highly risky."
Goyal added, "Some innovations may take many years to be fruitful while others may not be economically viable. The fund managers have wisely kept a mandate to deploy 20 per cent of assets in less risky classes such as depository receipts and ETFs to mitigate this risk. From an investment perspective, it would be wise to wait and watch how such a fund performs for at least a couple of years and then take the leap.”
Basavaraj Tonagatti, a Certified Financial Planner, SEBI Registered Investment Adviser and a Finance Blogger at BasuNivesh said, “I advise avoiding this fund, especially, if it is a component of your core portfolio even though innovation may seem appealing. The benefits of innovation to the underlying businesses are quite important. All innovations do not result in the growth of companies. In addition, there is a significant downside risk because it is a type of thematic fund."
Tonagatti added, "This fund makes up to 20 per cent of its investments in foreign equities, ADRs, GDRs, and other securities, all of which carry geopolitical and currency conversion risk. Despite being benchmarked to the Nifty 500, it is difficult to assess historical performance because this fund is an NFO. Considering all these factors, I strongly advise staying away.”
Mutual fund houses are now queuing up with new fund offers to entice more customers into investing in the market. While this is a good sign of advanced customer interest in the market, not all investments may be worth considering. Irrespective of the hype surrounding innovation and fund offers based on this theme, one must assess the pros and cons of putting their earnings in this kind of fund that is mainly sectoral, thus, hinting at the extreme risk involved.
