What are MNC Funds? 2 MNC Funds You Can Consider Investing In
MNC funds, as the name suggests, invest in multinational companies, these businesses draw considerable revenue from their business operations which are conducted in the overseas and domestic market.
Since companies tend to have economies of scale, they engage in exports to foreign countries, thereby generating good revenue.
These funds have managed to outperform the majority of funds as they tend to have high ranking companies in their portfolio. Since these companies have an edge over their competitors due to the large geographical presence and a global brand name, they possess strong pricing power over the market.
Generally, they perform across market cycles and deliver superior returns.
Apart from the advantages that are linked to these funds, there are certain disadvantages as well. As we know these funds are thematic in nature and invest in only a particular set of companies, it tends to lose out on variation in the portfolio that comes with a diversified fund.
1. Aditya Birla Sun Life MNC Fund
Key Information
| AUM | 3705 Cr |
| NAV (Direct Growth) | 777.6 (18 Jun 2019) |
| Minimum SIP Investment | 1000 |
| Expense Ratio (Direct) | 1.17% |
| Risk | Moderately High |
| Fund Manager | Ajay Garg |
| Exit Load | Exit load of 1% if redeemed within 1 year. Same for SIP. |
| Inception | 01 Jan 2013 |
Investment Objective
Aims to achieve long term capital appreciation by building a high quality growth-oriented portfolio
Sector Allocation
| Sectors | Aditya Birla Sun Life MNC Fund |
| Healthcare | 20.9% |
| FMCG | 20.3% |
| Financial | 18.3% |
| Engineering | 14.6% |
| Automobile | 8.5% |
| Services | 6.3% |
Top Holdings
| Name | % Assets | Sector |
| Honeywell Automation India Ltd. | 10.4% | Engineering |
| Gillette India Ltd. | 9.0% | FMCG |
| Pfizer Ltd. | 8.2% | Healthcare |
| Kotak Mahindra Bank Ltd. | 7.9% | Financial |
| Bayer CropScience Ltd. | 6.7% | Healthcare |
| Thomas Cook (India) Ltd. | 6.0% | Services |
| GlaxoSmithKline Pharmaceuticals Ltd. | 5.0% | Healthcare |
| IDFC First Bank Ltd. | 4.6% | Financial |
| Johnson Controls – Hitachi Air Conditioning India Ltd. | 4.2% | Cons Durable |
| Kansai Nerolac Paints Ltd. | 4.0% | Chemicals |
2. UTI MNC Fund
Key Information
| AUM | 2136 Cr |
| NAV (Direct Growth) | 197.6 (18 Jun 2019) |
| Minimum SIP Investment | 500 |
| Expense Ratio (Direct) | 1.43% |
| Risk | High |
| Fund Manager | Swati Anil Kulkarni |
| Exit Load | Exit load of 1% if redeemed less than 1 year |
| Inception | 01 Jan 2013 |
Investment Objective
Focuses on primarily investing in multi-national companies and other liquid stocks in order to be a pure growth-oriented fund
Sector Allocation
| Sectors | UTI MNC Fund |
| FMCG | 35.7% |
| Engineering | 15.8% |
| Automobile | 12.9% |
| Technology | 8.3% |
| Construction | 8.0% |
| Healthcare | 7.3% |
Top Holdings
| Name | % Assets | Sector |
| Maruti Suzuki India Ltd. | 8.4% | Automobile |
| Hindustan Unilever Ltd. | 8.1% | FMCG |
| Britannia Industries Ltd. | 7.5% | FMCG |
| Mphasis Ltd. | 5.8% | Technology |
| Ambuja Cements Ltd. | 3.7% | Construction |
| Honeywell Automation India Ltd. | 3.7% | Engineering |
| Sanofi India Ltd. | 3.6% | Healthcare |
| Glaxosmithkline Consumer Healthcare Ltd. | 3.6% | FMCG |
| United Spirits Ltd. | 3.6% | FMCG |
| Procter & Gamble Hygiene & Health Care Ltd. | 3.5% | FMCG |
Disadvantages of MNC Funds
1. Economic and Political Risk
A major risk associated with these funds is the economic and political risk that is since these firms have a global presence, they need to take into account rules and regulations of different countries and adhere to them.
If a particular country is facing political risk, like an unstable government or war-like situation, then it can adversely affect the company and thus its performance in the equity market.
Same goes with economic risk, viz. a slowdown in a particular country or trade tensions with peers, it can sway the company’s operation and profitability.
2. Replication
If you are already investing in diversified equity funds and still wanting to invest in MNC fund, then this can lead to replication as the stocks that are already present in your diversified equity portfolio are repeated in the MNC fund.
If you have an existing diversified portfolio then investing separately in an MNC fund is not advisable.
3. Defined Number of Stocks to Invest in
Since the number of MNC companies is limited as compared to other domestic companies, fund managers always face the issue of adding variation in their portfolio.
Also, these funds are seen as favorable, only when the market is not performing well, in cases when the markets are in a good shape then mid-cap and small-cap companies are preferred by investors in order to gain maximum returns that is seen in a bullish market.
4. Higher Valuation
A small investor usually doesn’t invest in these funds often because of the high valuation factor.
MNC companies which are part of these funds are valued highly as these firms have a strong geographical presence and thus, it is seen that investors are still willing to invest in these funds via systematic investment plan (SIP) and also should consider investing in them for longer time horizons say 3-5 years.
5. High Royalty payments
Since the parent companies charge high royalty fees to the subsidiary company, it may affect the company’s earnings in a shorter run. However, since the sales aggregate is high for such companies thus it does not affect the company noticeably.
Conclusion
Investing in thematic funds can be risky and should be done at the investor’s discretion. However, if the investor is confident about the fund he should invest in MNC funds as they offer multiple benefits and in recent times these funds seemed to have outperformed standard equity funds.
Happy Investing!
Disclaimer: The views expressed in this post are that of the author and not those of Groww
