My First Fund Review: ICICI Prudential Innovation Fund
DISCLAIMER: I am just a mutual fund enthusiast and not a SEBI CERTIFIED FINANCIAL EXPERT. This article is solely for educational purposes only and you should not invest in it, based on the opinions expressed in this article. You must consult a SEBI APPROVED FINANCIAL ADIVSOR before deciding to invest in this fund.
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[A] Background: Recently, someone, a colleague, asked me about how ICICI Prudential Innovation Fund is. In other words, is it worth investing in? I thought, rather than giving an answer to him personally, let me write a blog post on the same topic. As I have not written something for a long time now, this is a good chance to convert a question into a blog post. So, let's start!
[B] Objective of the Scheme: Let us make it very clear. I will not do the review, purely based on what the brochure of the NFO claimed. I will present its "translation" or "meaning", as understood by me. And that, of course, makes this a biased review. So, this disclosure may please be taken with a pinch of salt. Plus, the unnecessary technical jargons will also be kept at bay.
The fund looks to invest the money in the companies, that will be leading the diffusion of innovation and that will be the key to building of the wealth. The scheme will invest 80% of the money in companies, located in India and abroad, regardless of the sector and size of the company. In other words, it won't matter if the company is from India or USA or any other country, its market cap won't matter too, and its industry won't matter either. What will matter is that the company must have innovative strategy. It may also target the companies, which are solution oriented. Examples of innovative companies include Apple, for all of its products are very innovative or different or unique or Google (Page Rank Algorithm), or Tesla (need introduction?).
One Indian example of such a company is Zipdial. It allows its clients to get more clients through missed call services. Most of the Indian political parties subscribe to their services. We also use this service to check the balance of our bank account. Like you dial a number of a bank, it gets cut after a ring and you receive SMS with your balance. It is a classic example of innovation.
So, the point is, this fund will try and find such companies, and invest in them, when they are "young" or "small" (cap!) and multiply your returns as some of these become multibeggars. Please keep in mind that nowhere it is written that this fund will only invest in small caps. I am just trying to explain where does the fund intend to invest?
Plus, it may invest in solution oriented companies like various types of consultancy firms etc.
[C] How is the reputation of the Fund House?: It comes from one of the biggest fund houses India. ICICI Prudential's many schemes have generated enough wealth for its investors. We need not do any data crunching for that. Some of its legendary schemes like ICICI Balance Advantage Fund or ICICI Value Discover Fund or ICICI Balanced Fund (Aggressive Hybrid Equity Fund) are still generating wealth for its investors. Like HDFC Mutual Funds and Parag Parikh Mutual Funds, it is one of the rare fund houses, which builds its schemes' portfolio using the value investment strategy. Compared to that many fund houses prefer growth strategy of investment like Axis, Franklin Templeton and so on.
[D] Who is the boss of Investments at this company: I visited the LinkedIn profile of Mr. Chintan Haria for this blog post, and I found that he is Head of Investment Strategy at ICICI Pru Mutual Funds. His long list of qualifications include some prestigious qualifications like CA, CFA, ICWA and many other foreign certifications of repute. He has been with ICICI Pru for a long time and has risen from the post of a senior manager to the fund manager to the current designation. He has been with ICICI Pru since 2008 and that means, he understands the processes, culture, standards, values, customs, protocols, culture etc. of the company very well. His presence is very assuring for not only this scheme, but all the schemes of ICIC Prudential.
[E] Who are the fund managers?: Anish Tawakley and Vaibhav Dusad are the fund managers.
Anish has experience of more than two decades. He also manager Manufacture in India fund of ICICI Pru. He has worked with many MNC Finance and consultancy firms including Barclays, McKinsey to name a few, in leadership position. He is an alumni of IIT, Delhi and IIM, Bangalore. He is managing some eleven schemes at ICICI Prudential. It looks like (in my personal opinion) his presence is only symbolic.
Dusad Vaibhav was with Morgan Stanley, HSBC, CRISIL etc. He has degrees from ISB and IIT Madras. He manages ICICI Pru Technology Fund. As most of the innovation is related to technolgy, his presence is also very assuring. It is not known since when he has been managing this fund (along with other fund manager too), but this fund has been a laggard in its category in last two years. In medium to long terms, the fund has rewarded the investors very well, so that much underperformance of the scheme can be ignored. But as noted above, as the Anish's presence is likely to be symbolic, a lot will depend on the execution skills of Mr. Dusad.
View: Overall, it looks like the fund managers, who will manage these schemes, are capable people and you can trust them to invest your money wisely.
[F] Other Innovation Funds in India: There are many innovation funds in India with different mandates and comparing them to each other will be a herculean task. But DSP, Axis, UTI etc. have their funds in this category. Though a detailed study would be required to compare them, UTI innovation fund seems like it does not allow Indians to invest in it! Axis and DSP both run global innovation funds. Both are too new to judge for consistency or other dimensions. So, the problem is, we do not have any established fund, with which this fund can be compared. And as this fund was launched in April 2023, there is no way to say how it will perform. With a bottom up style of stock picking, the success of the fund will depend much on the skills of the research team and the fund manager.
This fund has generated 54% returns so far.
[G] How to evaluate this fund? - As the traditional method of judging this fund is not going to help as it is too new, let us look at it portfolio. It has invested approximately 60% money in large caps, 19% in mid caps and 5% in small caps. When we dig further, we learn that it has AUM of 1700 crore which is largely invested in companies like ICICI, L&T, AIRTEL, RELIANCE, MARUTI, SUN PHARMA, INFOSYS, HCL, P&G etc. It has invested in 52 stocks, which means, it is a highly diversified portfolio. Roughly 50% money is invested in the companies, named in the last line. So, this makes me wonder, what is the basis of the selection of these stocks? Some points can come to mind like Reliance (Jio) and Airtel will be leading India's 5G revolution. The highest money is invested in ICICI Bank. Can we say that it will be the most innovative company of India? I know this logic is flawed and mutual fund companies have a lot of rules to follow, when they construct any portfolio. But, still, investing thousands of crore of rupees in future leading innovative companies is far more difficult than you and I can imagine.
[H] Verdict: It is one more "NFO WITH SOMETHING NEW". It is a typical thematic fund. I am tempted to say (chhota mu aur badi bat?) that it is just one more diversified (flexicap) type of fund that tries to sell old wine in the new bottle. To look into that further, I tried to compare portfolio of ICICI Pru Flexicap with this fund. While their portfolios were not exactly the same, as expected, I could see some companies in both like RELIANCE, INFOSYS, MARUTI, AIRTEL. Yes, companies like SUN PHARMA, HCL, P&G were either absent or had very less weightage in the flexi cap fund.
So, in short, the exercise to analyse the portfolio of the fund is also not that good a way to judge it. THE BEST THING TO DO IS TO KEEP THIS FUND UNDER WATCH LIST AND COMPARE ITS PERFORMANCE WITH DSP AND AXIS INNOVATION FUNDS for at least next one to three years, and then decide, if the claims of the NFO are really worth buying! Till then, you can continue to invest in a good index or flexicap fund.
IF YOU STILL FEEL THAT YOU WILL MISS IT (FOMO), you can put some money in it to have your skin in the game, and see how your money grows, compared to any other flexicap or index fund i medium to long term. AS OF NOW, I DO NOT THINK ONE SHOULD INVEST TOO BIG AN AMOUNT IN IT. AT THE MOST, YOU CAN PUT A SMALL MONTHLY AMOUNT (1 TO 2% OF YOUR TOTAL SIP OUTGO) TO TEST THE WATERS.
I hope the review was useful. It is fully biased (based on my bias) and I have avoided going into technical details as much as possible so that maximum number of people can understand it.
Feedback is welcomed at pvariya@gmail.com
