/Are MNC funds a safe bet in the current scenario?

Are MNC funds a safe bet in the current scenario?

MNC Funds or mutual fund schemes that invest mostly in multinational companies are gaining currency these days. MNCs are always bankable, especially in the current bleak economic scenario due to the pandemic. These companies were also in the news as they were doling out handsome dividends last one month.

Reflecting the positive sentiment, the MNC mutual funds have been offering good returns. In the last three months, the MNC fund category has posed 16.22% returns. These schemes have given 2.23% in the last one year, 3.25% in three years and 4.69% in five years.

The big question is: Do these factors make MNC funds a safe bet to tide over the current uncertain scenario?

Mutual fund analysts believe that the dividends doled out by MNCs are a sign of good health of these companies. The dividends are reinvested by the mutual fund schemes. “The dividends will surely be re-invested and that will impact the NAV of the schemes. However, the spike is momentary. The dividends do not change the outlook or the return expectations from these schemes,” says Kaustubh Belapurkar, Director, Fund Research, Morningstar Investment Adviser India. He adds that the MNCs are a lucrative segment, with or without the dividends.

MNCs have strong corporate governance which makes them a favourite in uncertain times. Vidya Bala, Co-founder, PrimeInvestor.in, believes that MNCs are a preferred investment in the current times. Because of their track record and high cash nature, MNCs have been able to tide over many market cycles. This makes MNC funds a comparatively low-volatility thematic fund.

“One can play MNCs in both cyclical and defensive ways. There are big FMCG and pharma MNCs on one hand and IT and engineering MNCs on the other. This gives MNC funds a vast variation, much better than other sectoral schemes,” says Vidya Bala.

However, both the analysts don’t see MNC funds giving eye-popping returns in the current market. They also believe that MNC funds are not a good tactical call. “MNCs have a very strong base and strong outlook. This means that they are generally never available on discount. The valuation is generally high. So, the premium is low,” says Kaustubh Belapurkar.

These experts believe that the near to medium term outlook of these schemes is good, but investors shouldn’t expect very high returns from these schemes. They believe that MNCs are strong and stable portfolios and should only be used as diversification in an aggressive portfolio.

“These schemes won’t give you returns like large caps because they don’t have banks in their universe and the market is witnessing a narrow rally. Even though these schemes are stable and strong, these are sectoral schemes. Investors with high risk appetite should foray into these schemes. In the long term, you can use these schemes as a cushion in an aggressive equity portfolio,” says Vidya Bala.

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