How MNC funds have performed recently and should you invest in them? If so, what should your timeline be. CNBC-TV18.com spoke to experts to get an answer.
The Nifty multinational companies (MNC) index, consisting of 30 stocks, has outperformed Nifty50 in recent times. However, over longer periods — ranging from 2-5 years — the MNC index has underperformed the benchmark index. It has done better in the 10-year period.
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From the 30 stocks comprising the Nifty MNC index, data indicates that only 10-13 individual stocks have outperformed the index over longer time periods, ranging from one year and above, said Gopal Kavalireddi, Head of Research, FYERS, while talking exclusively to CNBC-TV18.com.
Kansai Nerolac Paints, Oracle Financial Services Software, Sanofi India, GSK Pharmaceuticals, Bata India, Colgate-Palmolive (India), Bosch are some of the prominent underperformers.
On the other hand, in the shorter time periods ranging between 11 months and under, the number of outperforming stocks increased to 16 stocks, with Schaeffler India, ABB India, Cummins India, Grindwell Norton providing superlative returns, Kavalireddi told CNBC-TV18.com.
Here’s a table showing how Nifty MNC performed in comparison to Nifty50 over over different time period:
Year to Date
Talking specifically about MNC funds, Kavalireddi said there are three notable MNC funds from the Indian mutual fund space, namely UTI MNC Fund, ICICI Prudential MNC Fund, and Aditya Birla Sun Life MNC Fund, with a total AUM of only Rs 7,660 crore. This pales in comparison to the total AUM of the schemes under the equity segment.
However, these funds have delivered returns of 6.2-6.9 percent over the last three-month period.
“The best performance among these funds has been the ICICI Prudential MNC Fund, delivering returns of 4.9 percent over a one-year period, 29.55 percent over a two-year period, and 23.91 percent over a three-year period,” he said.
SBI Magnum Global fund, which has 8 MNCs from its top 10 holdings, has also been a viable choice for investors.
Here’s a table indicating 1-year, 2-year, 3-year, 5-year and 1-year returns of some of the prominent MNC funds:
UTI MNC Fund
ICICI Prudential MNC Fund
Aditya Birla Sun Life MNC Fund
SBI Magnum Global Fund
So, are they worth investing?
According to Kavalireddi, trends indicate that investors can opt for value-oriented stocks with good fundamentals, stronger balance sheets and the backing of a strong parent company.
"Based on the portfolios of these MNC funds, investors can select the fund which meets their criteria on investment and returns," he suggested.
Additionally, investors should understand that MNC funds are relatively of lower volatility and usually provide regular dividends. So, these companies tend to be cash rich which helps cushion tough business cycles.
This means investors can enjoy relatively rich valuations owing to their strong patronage, which can be an issue during drawdowns.
However, investors need to understand that when domestic consumption and domestically-grown companies grow at a higher pace, these funds can be a value trap, warned Abhishek Dev, CEO at Epsilon Money Mart .
Moreover, one should always take a note that investing in thematic funds has its own pros and cons.
"These funds ideally shouldn't form the core of portfolio. Keeping a measured exposure to such themes, however, helps in having well run global companies that have proved their mettle across different business cycles in India and different markets in the portfolio. MNCs are known to be relatively more stable when it comes to generating returns over the long term and could fit the bill for a long-term investment i.e., more than five years," Dev told CNBC-TV18.com.