ICICI Prudential US Bluechip Equity Fund (IPU) will invest directly into US equities. ICICI Prudential Asset Management Co. Ltd has tied up with Morningstar, a US-based mutual fund (MF) tracker. In the US, Morningstar also tracks equities—it hawks its equity research just like it makes its MF research available—and has hypothetical portfolios to showcase its knack. One of these strategies, called Morningstar Wide Moat Focus Index (MWMF) invests in large and well managed companies of the US. ICICI Prudential AMC will adopt this strategy; IPU will invest in scrips of companies that form a part of this index.
What we like
For those who wish to diversify overseas and don’t mind sticking to just the US, IPU is a good option. The MF claims that the strategy of MWMF is such that it picks companies that have an economic moat; a distinct advantage in the company’s area of expertise. As a result, says ICICI Prudential, these companies stay profitable for longer periods of time. Though this is a new scheme, Morningstar’s strategy comes with a track record. It returned 15.33% and 30.5% in the past one and three years, respectively. Since ICICI Prudential is an Indian fund house, it’s vital to choose a partner that comes with a track record.
What we don’t like
Investing in foreign funds comes with currency risk. Say you had invested Rs 50,000 on 23 May 2011 in this fund. At 45.24 to a dollar that day, you would have invested about $1,105 in the US markets. In the past couple of weeks though, the rupee depreciated against the dollar and hit record lows practically every day. On 21 May, the rupee closed at 55.035 to a dollar. Assuming your equity portfolio doesn’t move, your initial investment of Rs 50,000 is now worth Rs 60,832. But that is because the rupee fell against the dollar. If and when the reverse happens, it typically negates gains that such funds may have made. Also, IPU will be treated like a debt fund as far as its taxation is concerned. Since the scheme will invest in international equities, it won’t qualify for long-term capital tax exemption, unlike equity funds that invest in domestic equities.
Mint Money take
IPU is not for first-time MF investors. It shouldn’t even be your third, fourth or fifth investment. It’s meant only for those who are thoroughly invested in Indian equities and could do with some country or region specific diversification outside India. Opt for IPU if you wish to invest in foreign equities.