2021 was a very good year for the Indian and global stock markets. This generated a lot of investor interest which resulted in strong inflows in the capital markets. The Mutual Fund industry too witnessed a slew of New Fund Offerings (NFOs). There were over 100 open ended funds launched in 2021 which collected a whopping Rs 90,000 Crores.
Most of the NFOs that were launched during the year were in categories such as Multicap, Flexi cap, Balanced Advantage Funds, etc and did not really bring something very unique to the table. We also saw a very large number of ETFs being launched, but most of these were just offering a low cost passively managed replacement to actively managed funds. In this article, I would like to share with you some of the funds that I believe genuinely offer a distinct and unique choice.
Edelweiss Nifty PSU Bond Plus SDL Index- 2026
This is an open-ended Target Maturity Index Fund predominantly investing in the constituents of Nifty PSU Bond Plus SDL Apr 2026 50:50 Index. What this means is that the fund will essential mature in April 2026, however it remains open ended and one can enter and exit anytime the wish to. The fund invests only in PSU bonds and State Development Loans and thus carries a very low credit risk. Post the launch of this scheme, there have been many similar index funds launched which track different debt indexes in the PSU Bond and SDL category.
This is a great scheme for someone looking for an alternative to Long term Fixed Deposits, as it has very low credit risk, provides a gross yield in excess of 6%* and a very low expense ratio (0.3% in Regular Plans). It also has the tax efficiency of debt funds. If you have a 4 year time horizon and wish to invest in High Quality Debt, this may be the scheme for you!
*Source (Edelweiss AMC website, as on 4th Feb, 2022)
IDFC Gilt Index -2027 and 2028
Both these schemes are target maturity index fund that invests in constituents of CRISIL Gilt 2027 and CRISIL Gilt Index 2028 and mature on 30th June 2027 and 5th April 2028 Respectively. Both these schemes invest solely in Government of India Securities, and provide a gross yield in excess of 6%* with low expense ratios (0.4% in Regular Plans). The main difference between these schemes and the Edelweiss PSU Bond plus SDL Index or other similar debt index schemes is the nature of underlying holdings, as these schemes only invest in Government of India securities, and the yield is marginally lower as compared to PSU Bond and SDL Indexes due to the better Credit Quality.
These are great options for someone looking to invest in long term debt but wants virtually zero credit risk in their portfolio.
* Source (IDFC AMC Website, as on 4th Feb, 2022)
HSBC Global Equity Climate Change FoF
This is an open ended fund of fund scheme investing in HSBC Global Investment Funds – Global Equity Climate Change
Rising demand for transformational changes to address climate risk and to combat climate change is a megatrend for the ages. The Underlying Fund’s pure thematic solution-focused approach selects a range of exposures throughout the growing universe of companies across developed and emerging markets, industries and market cap.
The Underlying Fund invests in innovative companies that offer the best solutions for the climate challenge across sectors such as Renewable Energy, Clean Transport, Energy Efficiency, Green Building, Waste management, etc. Bulk of the companies that the fund has invested in are based out of US, Japan and Europe.
In the last 6 Months, this fund has signiciantly underperfomed the S&P BSE 500 TRI. One of the major reasons for this is that many of the underlying companies are majorly overvalued as they fall in the ESG category, which has seen ripe valuations in the past few years.
This is definitely one fund to watch out for in the future, especially if one wishes to play the ESG theme and is patient enough to enter at reasonable valuations.
BNP Paribas Funds Aqua Fund of Fund
BNP Paribas Funds Aqua Fund of Fund, an open ended Fund of Fund scheme that invests in units of BNP Paribas Funds Aqua (Luxembourg) i.e. the Underlying Fund, which aims to invest in attractive global companies that are part of the growing global water value chain.
Owing to key factors like rising global population and urbanisation as well as an ageing water infrastructure, a whopping gap between the global demand and supply of water is eminent. Water, an indispensable asset, is fast becoming one of our most precious resources. A host of companies across the globe, providing solutions in areas like water infrastructure, water treatment and utilities, are working towards easing this burden. That makes water related businesses attractive long term investment opportunities.
Since launch, his fund too has underperformed the S&P BSE 500 TRI index. Similar to the HSBC Climate Change Fund, this fund also invests primarily in companies belonging to the ESG theme, a sector wrought with overvaluation.
Mahindra Manulife Asia Pacific REITS FoF
This is an open ended fund of fund scheme investing in Manulife Global Fund – Asia Pacific REIT FOF
The investment objective of the Scheme is to provide long term capital appreciation by investing predominantly in units of Manulife Global Fund – Asia Pacific REIT Fund, an overseas fund primarily investing in real estate investment trusts (REITs) in the Asia Pacific ex-Japan region
International REITs are a great way to diversify your portfolio and build exposure to real estate markets worldwide. There is a similar fund to this one, which was launched in December 2020, which is the Kotak International REIT FoF. Both funds invest in similar regions and REITs.
The major sources of returns in International REITs are the rental income, capital appreciation and rupee depreciation. They are a great category to diversify your portfolio as they invest in a completely different asset class (compared to the traditional equity and debt) and also provide international diversification.
PGIM India Global Select Real Estate Securities FoF
This fund is an open-ended equity fund of fund scheme investing in the underlying PGIM Global Select Real Estate Securities Fund, providing investors a diversified approach to global Real Estate investing.
The underlying fund provides investors with exposure across the U.S., European, and Asia Pacific real estate markets among other regions, to find potential opportunities around the world. The underlying fund invests in developed and emerging markets without particular focus on any one geographical location. As on September 30, 2021, the exposure towards North America is 62.2%, Europe Ex UK is 10.8% and United Kingdom is about 6%.
As compared to the other International REIT options available, the PGIM REIT fund invests much more in developed market economies, where the REIT market is much more mature and well established.
A combination of this fund and any of the APAC REIT funds ensures that one has real estate exposure in most major economies and regions of the world.
Nippon India Taiwan Equity Fund
This Fund seeks to provide an attractive diversification opportunity by investing in a high conviction portfolio of stocks of companies listed on recognized stock exchanges of Taiwan.
The Fund endeavours to identify industry leaders with a long term horizon and will follow a bottom up investment approach layered with flexible cash position to minimize draw down.
While Taiwan is an interesting economy to look at, there is always a threat to the economy from China. It is risky to invest in Taiwan but Taiwan is a technology heavy Economy and could yield great returns provided China does not interfere.
Conclusion
I would like to conclude with a couple of observations.
First, there is an eternal debate whether NFOs are worth investing in specially when we have hundreds of existing funds with established track records. As a purist, I would agree that existing products with established track records are a better bet. But given the fact that Mutual Fund ownership is so low in India compared to developed markets, NFOs provide an opportunity to deepen penetration. At the same time, NFOs can help in driving innovation.The new launches of 2021, specially the target date maturity funds and international REIT funds are likely to be the big categories for investors in the coming years.
Second, investors should always stay focussed on their goals and not be swayed by product launches. Your investment decision should always be linked to your goals, risk tolerance and ensuring that you stay true to your targeted asset allocation.
Disclaimer: In the article, fund names have been shared for illustrative purposes only. It should not be construed as an investment advice of any kind and/or recommendation to buy or sell the fund. Mutual funds are subject to market risks, please read all scheme related documents carefully.
1 thought on “NFOs that caught our attention in 2021”
Nicely framed and we’ll concluded. Good read as always.
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