HDFC Mutual Fund has launched the HDFC MNC Fund, an open-ended equity scheme targeting multinational companies for long–term capital appreciation.
The new fund offer (NFO) opened on February 17, and it will close on March 3, 2023. The scheme is benchmarked against NIFTY MNC TRI.
Investors seeking to generate long-term income through equity and equity-related instruments of multinational companies are particularly suitable for the scheme.
The fund has both regular and direct plans, offering growth option, and income distribution cum capital withdrawal (IDCW) option, which comes with payout and reinvestment facilities.
During the NFO period, the minimum purchase is Rs 100, and thereafter, any amount. The allotment is expected to be on March 9, 2023.
In addition, an exit load of one per cent will apply if the units are redeemed or switched out within a year from the date of allotment. No exit load if the units are redeemed after a year.
Also, in a press release, the fund house said, no entry or exit load would be levied on bonus units and units allotted on re-investment of IDCW.
HDFC AMC said the product is suitable for those seeking long-term capital appreciation through investments in equity or equity-related instruments of MNCs.
The portfolio will also ensure proper diversification and low overlap with broader equity indices. Rahul Baijal will be the fund manager of the scheme.
Portfolio Strategy
The scheme will follow a bottom-up approach to portfolio construction. For instance, the core of the portfolio would comprise MNCs, including companies having 50 per cent foreign promoter shareholding or firms that form part of the Nifty MNC index.
It will maintain a maximum of 30 stocks as per the investment strategy, focusing on “growth and quality at a reasonable valuation”. It will also implement the agnostic approach to sectoral allocation, with investment across market cap segments.
Furthermore, up to 20 per cent of the portfolio would comprise any Indian company with at least a part of its turnover coming from outside India, or if it is a franchisee of a foreign company.
The fund expects to target companies with a good track record of corporate governance, financial reporting standards, strong brand identity across geographies, solid research and development capabilities, focus on innovation, growth opportunities in domestic and export markets, superior capital allocation, higher return ratios, robust balance sheets, and low debt.
Besides, those having an attractive return track record with low volatility and better resilience during market downswings would be considered.
Why An MNC Fund
The fund house said MNCs generally provide a unique combination of innovation and brand creation due to the R&D focus of parent companies.
Over the last 10 years, NIFTY MNC Index has delivered better top-line growth with higher profitability than the NIFTY 500 Index. MNCs also usually have a greater focus on cash flows and balance sheets, thereby resulting in low leverage, it noted.
It said strong profitability and superior capital allocation result in consistently higher return ratios, thereby aiding wealth creation.
Seventeen companies in NIFTY MNC Index are trading at one year forward P/E lower than the five-year average, while 12 companies are trading above the long-term average.
Moreover, the NIFTY 500 and NIFTY MNC Index outperform each other at different times, thereby presenting a strong case for diversification, it added. Data from HDFC AMC showed that over a five-year time frame, NIFTY MNC Index had outperformed the NIFTY 500 in 78 per cent of instances due to better resilience against downsides.
