ICICI Pru Commodity fund expands investment scope

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ICICI Prudential Mutual Fund has made a significant change in the investment strategy of one of its schemes. The changes have been made in the ICICI Prudential Commodities Fund scheme.

Now, this fund will also invest in energy sector stocks. Until now, investments were being made in shares of companies involved in paper, cement, metal, chemical, and fertiliser production.

Now, shares of companies involved in oil and gas, petroleum products, power, and oil exploration will also be part of this scheme.

ICICI Prudential Commodities Fund scheme currently invests 80 to 100 percent in equity and schemes related to equities. The remaining is invested in debt, REITs, investment trusts and Gold ETFs. Now, this scheme will also invest in Silver ETF. Thus, there have been two changes in the original investment of the Commodities Fund scheme – one is that the Energy sector stocks will be included in the equity portion, and second, it will also invest in Silver ETF.

ICICI Prudential Commodities Fund is a thematic fund. In this scheme, the fund manager decides asset allocation based on a particular theme, considering the market performance.

Currently, there are better prospects for growth in the country’s energy sector. To take advantage of this growth opportunity, the mutual fund company has taken a step to invest in energy stocks.

Along with that, the reason for including Silver ETF is that there is an increasing demand for silver worldwide. Silver is also a good option to protect investments from inflation.

In this scenario, adding Silver ETF will help diversify its portfolio.

But why did ICICI Pru bring about this change?

The ICICI Pru Commodities Fund tracks the Nifty Commodities TRI. This index constitutes companies from sectors like oil, petroleum products, power, cement, chemicals, and metals.

But, these sector stocks were not there in the scheme. Due to this, the companies included in the ICICI Pru scheme were not aligned with the Nifty index.

To align with the benchmark, the company has made changes in its scheme and included companies related to energy.

SEBI registered investment advisor Jitendra Solanki says that ICICI Prudential Commodities Fund is a thematic fund that will attempt to capitalize on the prospects of the country’s energy sector. The fund house believes that the country’s energy sector will see good growth in the coming years.

But before investing in it, investors should understand how thematic funds work.

Solanki says that there is no denying that thematic funds offer the possibility of better returns. But these also come with higher risks. Therefore, such funds should not constitute more than 10 percent of your investment portfolio.

Speaking of taxes, thematic funds come under the equity category of mutual funds. So, the returns are also taxed like equity mutual funds.

If you redeem units of the fund within one year, you will be taxed at a rate of 15%. After one year, you will have to pay long-term capital gains tax of 10%. The relief is that long-term capital gains up to one lakh rupees in a financial year are tax-free. You won’t have to pay any tax on this amount.

Another question is what options are available to investors who already have money invested in the  scheme? ICICI Pru has informed investors about the changes in the scheme.

Investors who are registered in the scheme until March 22, 2024 and do not like the new theme can exit. There will be no exit load levied. Additionally, investors can switch their investments to any other scheme of the fund house. The company has provided time from April 5 to May 6, 2024, for this.

Thematic equity funds involve considerable risk. Therefore, only experienced investors who understand the relevant sector should invest in such funds.

These funds are beneficial for long-term investors. If you invest in thematic funds, the investment horizon should be at least three years.