Niranjan Avasthi, Sr. Vice President & Head – Product, Advertising and marketing, Digital and Corp Communication, Edelweiss MF, says “a fund of funds is solely a fund which in flip invests in an underlying fund. So once we discuss Edelweiss US Know-how Fund, it’s a fund of funds which invests into an underlying fund that’s JP Morgan US Know-how Fund, which basically invests in expertise firms within the US or firms that are listed in US markets.”
Allow us to give attention to the US market first. We are going to speak in regards to the tech house and tech shares in a while and extra intimately in regards to the fund. Allow us to discuss how effectively is the US market positioned, contemplating all of the regarding elements?
Broadly, the US marketplace for the final one yr was grappling with excessive inflation as a consequence of which now we have seen the US Fed growing charges at a greater than previous fee until greater than 5%. And this broadly, efficiently managed to deliver down inflation. As we converse immediately, the financial progress of the US financial system has been subdued over the previous couple of quarters and is predicted to stay so, given inflation remains to be very excessive, effectively above the Fed’s goal.

There isn’t a stimulus to the financial system as a result of the Fed is on a fee rising spree. Nevertheless, in pockets, whether or not we discuss unemployment numbers that are very low, total shopper spending has been regularly bettering over the previous 1-1.5 years. The housing market is kind of secure now. So in pockets, issues are trying higher. Nevertheless, total, the financial system remains to be sluggish or firing a lot under expectations.

Speaking about particularly having publicity within the US market, diversification is at all times an ideal technique. However to diversify in direction of the worldwide market, one must be sure that the core portfolio is sorted and also you, as an investor, are prepared for worldwide diversification. Is that one thing one should think about and may one membership it with different economies?
The US is the world’s largest financial system. If you’re investing in fairness, you can not ignore a market which has greater than 40-50% weight to the general market cap on the earth however the expectation whereas such diversification must be proper and proper. Over the long term, everyone knows India will do effectively. Returns will probably be made in India as effectively as a result of it’s rising a lot sooner than many different developed economies. However with regards to diversification, in case you are trying past India, one can’t ignore the US.

The US is a superpower, a largest market. Particularly, there are companies or sectors which aren’t current at that scale in another nation other than the US. If you wish to purchase expertise, modern well being care companies that are there within the US, you need to go to the US market as part of your diversification technique.
Speaking about your US Know-how Fund, it’s principally a fund of funds. Allow us to break this down and discuss what precisely is a fund of fund?
A fund of funds is solely a fund which in flip invests in an underlying fund. So once we discuss Edelweiss US Know-how Fund, it’s a fund of funds which invests into an underlying fund that’s JP Morgan US Know-how Fund, which basically invests in expertise firms within the US or firms that are listed in US markets.
The tech house is at all times very buzzing within the US and traders who’re already investing and who’re additionally trying on the U.S. market are often bullish with regards to the tech house. How thrilling is that this specific tech house for you and for this specific fund? What are the technicals by way of exposures?
Know-how is likely one of the most dynamic themes during the last couple of many years. We now have seen expertise altering fingers proper from industrialisation to electrical energy, electrification of economies to the web to generative AI now. Each decade, there’s a change within the face of expertise. And this fund basically tries to seize these adjustments, the mega tendencies throughout the expertise sectors and attempt to create a portfolio that generates commensurate returns on this particular theme.

The US is a big with regards to expertise. The general expertise index of MSCI Tech Index internationally, has greater than 80- 85% publicity from US tech shares. So they’re large. They don’t seem to be solely in a single particular area, however are throughout. After we discuss AI, it’s a US. firm. After we discuss web giants, these are the US. firms, be it e-commerce, digital or digital streaming, electrification of automobiles, semiconductors and so forth. A lot of the massive firms in every of those sectors, are from the US. So expertise is large and the US has a big share.

Now, inside that, if somebody needs to take a position, Edelweiss US Tech Fund is there, which in flip invests in JPMorgan U.S. Tech Fund. Primarily, it captures these tendencies and invests into expertise firms. Presently, when you see during the last couple of months, now we have been speaking about generative AI. The truth is, the variety of folks adapting the open AI system when it was launched, inside a matter of a month, a couple of billion folks signed up, in actual fact, simply 5 days. So, the adoption fee for AI could be very, very excessive.

Equally, adoption for a lot of different applied sciences be it cloud computing could be very, very excessive. After we discuss these varieties of companies, all of it boils right down to expertise firms. There are firms that are into {hardware}, that are into semiconductor, that are into web companies, cloud computing, which can take all these themes and generate returns for the traders. This fund basically identifies these varieties of companies that are into megatrends, the place the adoption by shoppers of those applied sciences is rising.

There’s large potential for such adoption. It invests into these sorts of firms. Over the past couple of years, expertise has one of many highest shares by way of earnings within the US market. The share of earnings by expertise firms is greater than 50% within the total US market. And even when you see within the total world, the share of expertise by way of returns and earnings could be very, very excessive. This fund really helps traders to seize that house and experience this theme over the subsequent couple of years and many years to go.

For an investor who’s already invested within the expertise sector in India, do you assume such a thematic fund is smart to their portfolio?
There are two issues to it. One is that the expertise that we discuss in India could be very completely different once we discuss expertise within the US. In India, the expertise is basically, IT companies, be it product companies or software program companies. After we discuss expertise within the US, it’s extra to do with semiconductors, {hardware}, web firms, additionally expertise, not solely in software program or web, but in addition expertise in medical house like biotechnology.

It additionally contains firms like Tesla, for instance, which is a part of the portfolio and never a advice, which is altering the best way we drive automobiles, the best way all of us journey. Know-how is a really, very broad theme. Whereas in India, once we discuss expertise, it is just confined to software program or IT firms. However once we discuss US tech, it is extremely diversified. You’ll have technology-led firms from leisure, cars, expertise, which is the IT sector and healthcare and biotechnology. Therefore, this diversification is kind of completely different. Even when somebody is invested within the IT sector in India, this publicity is warranted as a result of it provides a really completely different flavour to your portfolio.

What’s the tax therapy that an investor ought to learn about?
There was a current change in taxation so far as the fund of funds are involved. All of us bear in mind there was a change in taxation for debt funds in India. So the taxation as of now could be a marginal tax fee for no matter beneficial properties you make within the FOF. The taxation will probably be as per your marginal tax fee. Nevertheless, there are expectations that the taxation will probably be made in keeping with the opposite fairness, which is providing you with an indexation profit if you make investments abroad from India into possibly US shares, another worldwide inventory. As of now, the taxation is on the marginal fee and one ought to be privy to this.

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