NFO: Axis Growth Opportunities Fund offers exposure to India & global stocksAxis Mutual Fund has launched the new fund offer for ‘Axis Growth Opportunities Fund’. This fund aims to offer global diversification to Indian investors by participating in equity and equity related instruments both in India as well as overseas. It will leverage its relationship with Schroder Investment Management Limited as the investment advisor. The NFO closes on October 15, 2018.

Fund reasoning

Different markets in the world perform at different times due to the low correlation between them creating a good diversification opportunity. Global diversification has the potential to optimise returns while reducing the risk of the overall portfolio significantly if the assets are chosen well. While global events can be unnerving like the 2008 crisis or the Brexit event, global allocations help better withstand event shocks. The biggest reason for investing in a fund that has a global touch is the sheer opportunity to invest in globally unexplored themes. Not all types of themes can be captured in India. You cannot ordinarily invest in stocks of Amazon, Alibaba, Adidas, Johnson & Johnson, Facebook, LVMH, Intel, Visa or Toyota. A fund with global aspirations can help an investor do the same.

Portfolio construct

Axis Growth Opportunities Fund will typically look to have 30-35% in domestic large caps and up to 35% in foreign securities (predominantly large caps). This makes the total large-cap allocation at 35-65% and total domestic midcaps of 35-40%. The domestic equities portion will be a diversified multi-cap portfolio.

The overseas allocation will be made by directly investing in foreign securities advised by Schroder Investment Management Ltd. Do remember that Schroder Singapore Holdings Pvt Ltd has acquired 25% of the total issued and paid up equity share capital plus one equity share in Axis AMC and Axis Trustee respectively.

The overseas investment philosophy is aligned with domestic Axis philosophy of bottom-up investing in high-quality stocks with high growth prospects. The target of the high-quality portfolio construct is to generate sustainable long-term performance while keeping risk contained.

Global investment approach

There are four key elements.

Country exposure – Typically key exposures will be in Americas, Europe ex- UK, Middle east, Emerging Markets & Japan.

Sector allocation – Typically the top sectors will be Information Technology, Financials, Consumer Discretionary and Healthcare.

Market Cap range – Do remember global stocks are often much bigger than Indian ones. The fund aims to capture the global opportunities that are unavailable for domestic investors. Predominantly large caps (typically companies with >$5 billion market cap).

Investment Focus – High conviction ideas where current price doesn’t reflect future prospects, expected to deliver future earnings growth above consensus over the 3-5-year horizon, and also looks at material environmental, social and governance (ESG) factors.

Load and other details

The minimum application amount for this NFO is Rs 5,000 and in multiples of Re. 1/- thereafter.

The fund offers a direct and regular plan, both with growth and dividend options.

An exit load of 1% is applicable if redeemed/switched out on or before 12 months from the date of allotment.

The fund offers Nil exit-load for redemption up to 10% of the investment amount.

Fund category, investment horizon, benchmark

This will be a large & mid cap fund. The investment horizon will be 5+ years.

The scheme will be benchmarked against S&P BSE 200.

Fund house speak

Chandresh Kumar Nigam, MD & CEO, Axis AMC said, “If Indian investors are the consumers of multiple global brands in their day to day lives, they should be given access to participate in their global growth stories. We at Axis are happy to launch our new fund ‘Axis Growth Opportunities Fund’ that offers global diversification to Indian investors by leveraging our relationship with Schroder and their global equity investing expertise.”

Fund manager

The fund will be managed by Jinesh Gopani, Head – Equity. Gopani manages popular schemes like Axis Focused 25 Fund and Axis Long Term Equity Fund.

Global asset bring new risks

Apart from the risks associated with domestic investments, the scheme’s planned investment in overseas markets carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, repatriation of capital due to exchange controls and political circumstances.

Peers

There are many international equity funds in the market, but there are a few schemes which offer exposure to local and global opportunities. The first fund that comes to our mind is the Parag Parikh Long Term Equity Fund, which has the flexibility to invest in Indian and foreign companies irrespective of market capitalization and sectors.

There are also others like Templeton India Equity Income Fund which invests in Indian and emerging market companies that have the potential to provide growth through capital appreciation as well as regular income through dividends.

Taxation

Funds that invest at least 65% in Indian stocks and the rest in international stocks are categorized as equity funds. This means that as a pure domestic equity fund, they are subject to 10% LTCG tax over capital gains of Rs 1 lakh for an investment horizon of over one year.

All other types of international funds are taxed like debt funds, where long-term gains for investments over three years would be taxed at a flat rate of 20% with indexation. Short-term gains for schemes taxed as equity funds would be taxed at 15%, while for those taxed like debt funds, gains will be added to the investor’s income and will be taxed as per the applicable slab rates.

RupeeIQ take – The fund aims to provide Axis’ domestic research and investing capabilities with Schroders’ global expertise. It is true that a domestic quality portfolio with global diversification can reduce volatility and drawdowns. The opportunity to invest in world-class companies and themes, which are not available in India, is very tempting. India’s equity market cap is just 3% of the world’s market cap indicating that domestic mutual fund investors are not exposed to 97% of the world’s equity investment opportunities. As a rule of diversification, 5-10% of one’s portfolio allocation to another geography. A fund with a global edge benefits from the fact that the rupee depreciates. Stock selection would be key. If you feel Axis and Schroders can do it, go for it.

Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

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Staff Writer

This article is written by RupeeIQ editorial staff.