ICICI Prudential US Bluechip Equity Fund was launched by ICICI Prudential AMC on June 19th 2012. Let us check the details and see whether it makes sense to invest in this mutual fund.
A bit on the fund house first. ICICI Prudential AMC is one of the most reputed fund houses in India. It has some good 5 star and 4 star rated mutual funds in its kitty and is the third largest fund house.
Obviously, an AMC which has been on India soil for 15 years will know the ropes of how to manage a fund much better than the others.
ICICI Prudential US Bluechip Equity Fund
This is a New Fund Offer (NFO) which will remain open till July 2nd 2012. The NFO price per unit is Rs 10 and the options are growth and dividend. In the dividend option, you have both the payout and the re-investment option available as do other mutual funds generally.
Retail investors can participate with Rs 5000/- minimum investment. The SIP can be done with an amount of Rs 1,000. The expense ratio is at 2.5% which looks a tad higher to me.
This is an open ended equity scheme and is not a fund of fund nor an index fund.
Investment Objective
This is where it gets a bit interesting. This is a US dedicated mutual fund and will invest directly in US equity markets. You might raise your eyebrows at that but the prospectus the AMC has come out with makes an interesting read.
The fund has bench marked itself against S&P 500 Index. The objective of the fund is to appreciate your capital by investing in companies listed on the New York Stock Exchange or NASDAQ. It will invest in only 20 – 25 stocks at a time from sectors like healthcare, technology and medicine among others.
While the fund will park around 65-70% of its money in such US companies, the rest of the money will be parked in debt which will be from India and US both. The fund will follow both top down and bottom up approaches while investing.
Does it make sense to invest ?
Gone are the days when investors were confused between a NFO and IPO and so people will not be rushing in to buy during the NFO period but smart investors know that buying during an NFO period is not going to help you make money. There are already other good mutual funds out there which should be looked at first.
But are there any with an exposure to US based stocks ? Actually there are two – Motilal Oswal MOSt Shares NASDAQ-100 ETF and FT India Feeder Franklin US Opportunities.
The Motilal Oswal one is 1.5 years old and has delivered around 29% returns since launch (March 2011). The FT Feeder fund was launched in Jan 2012 and has given 10% returns. Not bad at all you must say when the S&P 500 Index has itself given around 6.7% returns during this period !
Note that the returns these funds were able to offer was because of the interest rate movement kicker, apart from their own ability to generate these returns. The rupee has depreciated against the dollar and this has helped these funds to clock these good returns.
In fact this is a risk that all international funds are exposed to – the interest rate movement adds to the pain or gain of the fund returns over a period of time. So do not base your decision looking at how similar funds have performed. Over a period of time, the rupee might appreciate and if that happens, you could be sitting on losses.
Check whether you need and have international exposure in your portfolio. Don’t buy just in the name of diversification. The objective of the fund should drive your investment requirement but before you do make sure you get the basics right on how the interest rate movement can impact you. Don’t buy thinking that Rs 10 per unit is cheap !
Here is the prospectus of ICICI Prudential US Bluechip Equity Fund from the AMC.
Interesting, investing in US markets. Surprised to hear that motilal oswal fund delivered 29% returns. I will give this fund a miss happy with my current portfolio.
Is your current portfolio delivering more than 29% Rakesh.
If not, why are you giving this a miss ?
I am not sure if this is the right time to introduce this fund. The US market is still volatile and haven’t recovered fully from the crash yet. The US market might be impacted with the current Euro crisis as well.
I think it is too risky to invest in international markets at this point of time. One may argue “cash the crash” but you need to understand the international markets very well to leverage from it. Similar scenario in Indian market would be different because we can understand domestic market better.
I will give it a miss.
The brochure explains why the time is right to invest in the US…
Isn’t that the purpose of every broucher? 🙂
Even LIC policy brouchers will say why it is in your best interest to invest in this policy but we know the underlying truth is something else.
If a fund returns 29% in the first year there is no guarantee it will deliver the same returns every year. We need to monitor its performance for few years and then take a call. My expectation from my funds is 12% and if i get that much returns i am happy. If this fund delivers over 20% consistently over 5 years time then i would give it a look.
I don’t quite agree with this analogy. There is no guarantee even after 5 years of good performance that sixth year would be good too.
I might look at it the other way. When you start a fund you have whole lot of opportunities to cash upon but as you grow opportunities to grow further gets restricted and you may not perform as high as initial days.
Yes, one year is not good enough to judge but returns as high as 29% is surely going to bring it “under observation” radar for next year. But it really depends on the strategy of the fund, which is going to be another decision making factor.
@Vivek,
Yes i agree there is no guarantee that the fund will perform but atleast we will have a benchmark of its performance over the years. Even the best of funds namely HDFC Top 200 & DSP Top 100 have had few bad years.
I think after 5 years of performance, one is at least sure that the fund has consistently performed for more years (5) than less years (1). You are right about the fact that it does not mean that 6th year will be good but the probability increases.
Thanks a lot TheWealthWisher for the article and Vivek/Rakesh for the comments. I am getting to know more about how to think in terms of investment. Good discussion!
@Rohit,
You will find a wealth of information here that will help you streamline your financial plan. Radhey has written a lot of good articles, do take time to read them and spread the word.
Glad you liked it mate !
Last 1yr return could have been inflated by USD:INR forex. Any such fund will have a component of exchange rate game in it. i.e. Today if I invest 57000INR in this fund, the fund gets investment worth 1000USD in US. Lets assume the portfolio in NYSE yields 10% return in a year which is 1100USD.
Case 1: USD:INR=40 after a yr. 1100 USD is worth 44000 INR – net loss 13K INR
Case 2: USD:INR=70 after a yr. 1100 USD is worth 77000 INR – net profit 20K INR
Correct my understanding if wrong.
You are right, exchange rate will play a big role and that’s why I said you need to understand international markets well to get into such funds.
I think it is better to stick to Indian MFs.
It is correct. Good work.
I realised this when I recently had a discussion with a US based friend investing in India. My friend bought a flat in Bangalore in 2008 for investment 40L (1L USD at that time). Now he says even if its worth 80L, if converted back to USD on current rate the ROI is low. He would have been better off investing in US equities.