Mirae Asset Global Commodity Stock Fund - Buy?

Mirae Asset Global Investment Managers has launched Mirae Asset Global Commodity Stock Fund (MAGCSF), an open-ended equity diversified fund investing in equity and equity related securities of companies that benefit either directly or indirectly from commodity price movements, with at least 65% of the corpus invested overseas in Asia Pacific and Emerging Markets. (View - New Fund Offers open NOW)

Advisor Hemant Rustagi believes that this fund provides an opportunity for investors to benefit from the global commodity boom. Besides, it will provide diversification by investing in international as well as domestic companies directly and indirectly associated with the commodity business.

Is this a good time to look at Commodities?

Investment expert Sandeep Shanbhag says, “Global structural imbalances have given rise to a mismatch in the demand and supply of commodities. Currently demand far outstrips supply and this has led to a runaway increase in global commodity prices. As commodity cycles typically last for ten years and more it is widely expected that the high commodity prices will be sustainable in the near to the medium term.”

“Also, typically commodities and equity have a negative correlation. Therefore, at present when the equity market is doing poorly, commodities could provide an effective hedge to one's portfolio”, Shanbhag adds.

Key highlight:

Mirae Asset Global Commodity Stock Fund is not a feeder fund. Shanbhag elaborates, "Most international funds launched in India have adopted the feeder fund route (a kind of fund of funds structure) where the Indian fund in turn invests directly with the parent international fund. This creates a two layered cost structured which is absent in the case of MAGCSF."
 
Risks of investing in MAGCSF:
 
A couple of points that investors should keep in mind are the risk of dollar depreciation as also the tax angle.

Shanbhag elaborates, “As your funds in MAGCSF would eventually be invested in dollar denominated assets, any currency fluctuation would directly affect your rupee return. Such depreciation of the rupee directly eats into a dollar return and investors should be aware of the currency risk that they undertake when they invest in this fund.”

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However, Gopal Agrawal, Head – Equity at Mirae Asset Global Investment Management clarifies, “The fund is majorly going to invest in commodity producing economies, which are not only dollar denominated. Secondly, these economies generally are strong against dollar. On the contrary the diversification of the portfolio across geographies might neutralize the dollar effect. Also, of the 35% that would be invested in Indian equities, 5-10% would have exposure to Gold related companies. Gold generally is a hedge against dollar movements.”

From the taxation point of view, this fund will not enjoy the tax benefits that equity funds are eligible for because it intends to invest more than 65% of the corpus in overseas equity. Long term gains would be taxable at 10% and short term gains would be taxable as per slab rates applicable to the investor, says Shanbhag.

Conclusion:
 
MAGCSF is a riskier fund and may be suitable for only those investors who have the capacity to take risk generally associated with a sector or a specialty fund. Therefore, investors should be well aware of their individual risk profile before committing any funds. Also, only a small portion of the portfolio should be invested in this fund.

- Reena Prince

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