Mutual fund houses are becoming increasingly innovative in labelling their new fund offers (NFOs). Take for example, how Union Mutual Fund launched the Union Innovation & Opportunities Fund on August 16 this year. As opposed to other asset management companies (AMCs) that launched innovation funds in the past, this mutual fund company went a step further to add “Opportunities” to “Innovation” to prompt more people to benefit from the innovations in various sectors. Considering how opportunities from innovations can translate to increased stock prices and consequently profits from the stock market, new-age investors are inquiring if this NFO is worth considering.
Vivek Iyer, Partner, Grant Thornton Bharat responded, “Given the growth of the digital natives' ecosystem in India, Innovation is a very interesting investment theme. However, the risks inherent in the theme are very high and hence it is suitable only for very sophisticated investors with a very high-risk appetite, something that the scheme information document rightly highlights. The suitability of an investment depends on the risk and return profile of the investor viewed in the context of the total investor portfolio. The high-risk nature of this investment would need to be evaluated for fitment on a case-to-case basis by the investor.”
Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates added, “Actually when I hear the word Innovation and Opportunities - I hope the fund manager Should find unique sector/trend and new business opportunities to focus on and to do research and invest and not to invest in the same large caps legacy stocks because it does not serve the purpose. We do not need a separate fund to buy Nifty 50 or Sensex 30 stocks.”
There are other AMCs in India too that have launched innovation funds in the past. Most of these funds have similar asset allocations as below.
| Instruments | Indicative allocations (% of total assets) | Risk Profile | |
Minimum | Maximum | ||
Equity and equity-related instruments of innovative companies | 80% | 100% | Very High |
Equity and equity-related instruments of other than the above companies | 0% | 20% | Very High |
Debt and money market instruments | 0% | 20% | Low to Medium |
Units of REITs and InvITs | 0% | 10% | Very High |
It is not clear if this fund would invest differently from other innovation funds in the market. This leaves many wondering if they should wait and see how this fund would perform before investing or participate in this new fund launch. Market veterans often advise how investors must first check for existing funds’ performance and myriad other factors before deciding when and where to put their money.
Innovation funds have performed well in the past and are expected to benefit from sudden market movements and the government’s focus on product inventions in the future. However, past returns do not mirror future returns nor do they set the tone for the possibility of consistent returns in the long run. The decision to start investing in one of these funds based on their past returns or to opt for the NFO depends on how one views risks in the purview of returns when choosing an investment.
There is no thumb rule to decide what one must consider while deciding their investments, approaching a professional advisor for his expertise would do a lot of good while working on an investment portfolio.
