Should you still invest in MNC Mutual Funds?

MNC Mutual fundsShould you still invest in MNC Mutual Funds?


MNC Mutual funds have been giving superior returns for the past few years. Some of the mutual funds like Birla SL MNC Fund or UTI MNC Fund gave 70% returns in last 1 year and 25% annualized returns in last 5 years. Recently SEBI has given certain guidelines in Nov-2014 which would affect MNC companies. Should you still continue to invest in MNC Mutual Funds? How SEBI guidelines affect MNC mutual fund returns in future? This post is based on request from Ms. Pavani on “Suggest a topic” to write about MNC mutual funds.

What are MNC Mutual Funds?


Companies which are registered outside India, but having subsidiaries and operations in India are termed as MNC companies. MNC companies are preferred as long term wealth creators by investors. Funds that bet and invest in MNC companies are MNC Mutual Funds. MNC’s are believed to be good companies as they are well managed by professionals, good corporate governance and well established and have quality products. MNC companies have been doing well and outperformed the Indian companies in terms of performance. These have given high returns compared to some of the best performing mutual funds in 2015. Some of the companies have been de-listed from the Indian markets and share prices are shooted significantly. De-listing offers went to 46 in 2013-14.

What are new SEBI guidelines issued in Nov-2014?


All well. Wait. Recently, SEBI has revised the norms in Nov-2014 which has changed the view on MNC companies.  These guidelines would discourage MNC companies. SEBI amended SEBI (Delisting of Equity Shares) Regulations in Nov-2014. De-listing is now tough as per recent amendments.

What are new norms for MNC companies issued by SEBI?


  • Buy back at least 90% of total capital
  • Acquire 25% of the share capital out of total public shareholder capital as on the date of which delisting has been approved.
  • Companies should be delisted within 76 days (earlier 117 days)
  • Delisting at a price at which 90% of the shareholders, including promoters tender those shares under the price of the reverse book building.
  • These norms are favoring minotory shareholders and not a majority of shareholders.
  • Practical problems make them not to delist. Open offer would would reduce drastically / significantly in future.

How do they affect MNC Mutual Funds?


MNC mutual funds have been enjoying superior returns all along mainly by increase in share prices due to delisting apart from good performance from  them. Now with delisting norms becoming harder, may MNC companies would not think of delisting. Hence share prices may not shoot up and you may not see superior returns in such stocks going forward like what you have seen earlier. Hence, you cannot assume that investing in MNC funds would give good returns in future.

Conclusion: MNC mutual funds have been good returns. However, due to new norms from SEBI, MNC mutual funds are unattractive now. Alternatively, you should consider investing in multi-cap mutual funds like Reliance Equity Opps Fund / Franklin High Growth Funds or Opportunities Mutual funds like UTI Opportunities fund / L&T Special Situations fund, etc.

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Suresh
Should you still invest in MNC Mutual Funds

Suresh KP

17 comments

  • Mahesh

    Hi Suresh,
    What is the difference between 1 year and annualized return? If one year return is more that the annualized return, then should we exit from the fund after 1 year itself? This might be a very basic question, but request for your comment.

  • Rajiv Ahuja

    Informative article.

  • Sathish

    Good Article Suresh..Is there any Pharma ETF available like Nifty & Junior Bees…

  • Dinesh

    I don’t think MNC companies share prices have increased only because of de-listing announcements. It may be few for some, but u can’t generalize that. Look at a company like Tata Honeywell, a true blue MNC. They never announced de-listing and yet its share price has multiplied many times over. The same goes for Goodyear India, Hindustan Unilever, SML Isuzu and many more. So to say that MNC funds have given superior returns because of de-listing and that they will not do well because of new SEBI guidelines may be stretching it too far. After all, u should give credit to the good management and governance of these companies.
    If the MNC companies and by extension the MNC funds don’t do well, it won’t be because of SEBI guidelines but because of other more fundamental reasons like the economy segment they are in not doing well. After all MNC funds have been around for quite some time now and this de-listing phenomenon is a trend over the last few years only. And after the SEBI rules were changed to make way for OFS, the del-listing fever has died down now over the past year or so.

    • Dinesh, Several MNC companies shares has gone up in last 1-2 years and whereever de-listing announcements were announced, share prices rocketed. Hence I am saying that one can still invset, but cannot expect similar returns in future.

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