To build a well-diversified equity portfolio, an investor generally suggests a combination of large, mid, small and multi-cap equity funds. It is usually advised that a mutual fund investor should avoid more exotic offerings like thematic funds. However, the consistent good return of MNC funds may be a strong reason for investors to include these funds in their core portfolio.
Before we proceed, let us first deconstruct the concept of MNC funds
As the name suggests, MNC funds invest in multinational companies, businesses that derive a sizable chunk of their revenue from overseas operations or via exports to foreign countries. Also, these funds have managed to outperform the majority of mutual funds as they tend to have top-ranking multinational companies in their core portfolio.
Compared to other regular thematic funds, these funds are less volatile, and thus less risky since these MNCs are well-heeled and can survive adverse situations. MNC funds are most suitable for long-term investors because multinational companies are known to be extremely stable when it comes to generating long-term returns.
Viral Bhatt, Founder, Money Mantra says, “MNC funds can perform the role of a large-cap fund in the portfolio, considering the deterioration in return profile in this category. In a volatile market, an MNC fund can provide stability to a portfolio. They can be better substitutes for large-cap funds since large-caps are also meant to contain volatility. MNC funds are not restricted to specific sectors. They are more diversified and less risky than regular sector or thematic funds.”
At the beginning of this month, Kotak AMC launched an exchange traded fund, the first passive in this category. Moreover, Aditya Birla Sun Life, ICICI Prudential, SBI, and UTI AMC (asset management company) are the four active funds under this category and have a combined AUM (assets under management) of 12,760 crore.
|Name of the schemes||3 years return (%)|
|ICICI Pru MNC Fund||24.3|
|SBI Magnum Global Fund||21.71|
|UTI MNC Fund||16.05|
|Aditya Birla SL MNC Fund||12.34|
(Source: Fundsindia, as of 25, August 2022)
Now, the big question is: Are MNC funds a safe investment option for the investors?
“A lot of noise around MNC investment was made during the 90s. However, the same thought process of corporate governance can’t be copied in the current environment. Often MNC’s interest is the dividend from the country they operate. Listening to and caring about minority interests is not their top agenda. When an investor is evaluating MNC funds, they should consider this risk, says Ankur Kapoor, CFO, Pulsar Capital.