IDFC Mutual Fund launches US Equity Fund of Fund; should you invest?

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If you are an investor looking for a global diversification of your investment portfolio, then Fund of Funds (FoFs), especially the one that invests in the US market, might be good for you. It is no surprise since February 2021, seven schemes of the FoFs category have been launched by many mutual fund houses (see the returns table of FoFs). The recent one is IDFC Mutual Fund that announced its first international fund called IDFC US Equity Fund of Fund.

Fund of Funds (FoFs) is a mutual fund that invests in other mutual fund schemes. The Fund of Funds invests in other mutual fund schemes like how funds invest in stocks and bonds. As a result, this mutual fund scheme may invest in both debt and equities, depending on your investing objective.

At present, US equities can be an excellent option to an investor’s portfolio due to their low correlation to Indian equities, which allows for optimal diversification and exposure to the USD, a critical asset. The more robust performance of the US equity market can be linked to the country’s higher earnings growth, which makes it an ideal destination for investors seeking excellent returns with little risk.

The IDFC US Equity Fund of Fund is an open-ended fund of fund scheme investing in units/shares of overseas mutual fund scheme (/s) / exchange traded fund (/s) investing in US equity securities. The fund will invest in three underlying funds of the US market, i.e., JPMorgan Funds – US Growth Fund, iShares Russell 1000 Growth ETF, and Vanguard Russell 1000 Growth ETF. 

That said, the scheme seeks to generate long-term capital appreciation by investing in units/shares of overseas Mutual Fund Scheme(/s)/Exchange Traded Fund(/s) investing in US equity securities. The New Fund Offer will open for subscription on Thursday, July 29, 2021, and close on Thursday, August 12, 2021.

Investment strategy

The scheme is designed to offer investors an opportunity to invest in a growth-oriented portfolio of US stocks, thereby benefiting from strong structural opportunities in a resilient US market.

Incepted in 2000 and has an asset under management of $1.8 billion as of June 30, 2021, JPMorgan US Growth Fund is the actively managed underlying fund with a robust investment framework, a tight-knit portfolio team, and a consistent track record. The fund is benchmarked against Russell 1000 Growth Index.

Management Views

The underlying fund portfolio comprises 60-90 fundamentally sound firms, with foreign countries accounting for 40% of the underlying stocks’ revenue.  “The US economy started showing signs of economic revival, supported by the aggressive vaccination rollout, flattening the curve of the Covid-19 cases, progression towards herd immunity, reopening of establishments, and fiscal stimulus by the government. These key factors have restored the confidence of investors. The US market is at the forefront of new-age innovations across different sectors, and investors can reap the benefit of those unique businesses. Investors can add currency exposure to their portfolio to meet future expenses and participate in innovative themes, which are expected to advance the US economy further,” said Vishal Kapoor, CEO, IDFC Asset Management Company (AMC).

What should investors know?

-An exit load of 1% is applicable if the units are redeemed/switched out within one year from the date of allotment. No exit load if the units are redeemed/switched out after one year from the date of allotment.

-Minimum Application amount during New Fund Offer: Rs 5,000/- and in multiples of Rs 1/- thereafter.

-The maximum total expense ratio allowable is 2.25%, including the expense of the underlying fund.

-The fund would be managed by fund managers Viraj Kulkarni and Harshal Joshi.

-The scheme comes under the ‘Very High Risk’ category as being investing in the global market has currency risk and global risk. Investors are advised to check with their financial advisors before investing in this product.