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ICICI Pru Indo Asia Equity Fund - Should you buy?

Published on Wed, Sep 19, 2007 at 12:58 | Source : Moneycontrol.com

Updated at Fri, Sep 21, 2007 at 15:06

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Recently the Indian mutual fund industry has witnessed several launches that basically invest all or a part of their assets into their parent body's international fund.

One of the new entrants into international investing is ICICI Prudential Indo Asia Equity Fund (IAEF), is an open-ended equity diversified scheme that will invest 65% or more of its corpus directly in Indian equities across market capitalization and the rest in Asian Equity Fund, an open-ended equity fund managed by Prudential Asset Management, Singapore, predominantly investing in equity markets across the Asia-Pacific region except Japan.

Investment Objective & Performance:

Investment expert Sandeep Shanbhag says, "As 65% of the funds of IAEF would be invested in domestic equity, investments in the fund would be eligible for tax benefits in terms of tax-free long-term capital gains and the concessional rate of 10% on short-term capital gains."

"Also as 35% of the funds would directly be invested in the Asian Equity Fund, to that extent, the return would depend upon its performance. The Asian Equity Fund has a corpus of $590 million and its fund's allocation is mainly into three countries - Korea (22.6%), Hong Kong (21%) and Taiwan (19.9%). Samsung Electronics is the top holding with an allocation of 4.8% of the portfolio", he added.

Meanwhile, advisor Hemant Rustagi feels that as the fund would be investing 65% or more in domestic markets, the fund's performance may not be very different from other domestic funds.

But Sankaran Naren, Fund Manager of ICICI Prudential Indo Asia Equity Fund clarifies, "All the Asian economies are at an expansion and growth phase. However, the growth drivers for each economy are different. For India the growth drivers are a consumption based economy, infrastructure and outsourcing while for another Asian economy the growth drivers could be different. We thus believe that over the next 3 years, there is no necessity that the Asian returns need to be totally correlated returns."

Currency Risk:

Shanbhag says, "As 35% IAEF assets would eventually be invested in dollar denominated assets, any currency fluctuation would directly affect the rupee return. For example, the US dollar has depreciated by over 8% in the last 3-4 months against the rupee."

Fund manager S Naren says, "We would like to elucidate that the Indo Asia Equity Fund uses US dollar as a translation currency and Indian money eventually, is invested in the Korean Won, Singapore Dollar etc, which are all strong currencies."

Performance of existing schemes:

The performance of ICICI Prudential as a fund house has been noteworthy. Especially since Mr. Nilesh Shah's advent in the fund management team, several of ICICI Pru's schemes has been consistently posting first quartile returns, highlights Shanbhag.

Conclusion:

Experts believe that investors looking for the extra layer of diversification by taking exposure to markets abroad may invest. However, do keep in mind that this fund will provide diversification across the Asia-Pacific region except Japan.

For more Views by Experts click here