How are Long Duration Funds for investment, who should invest?

FMCG is a defensive sector. If you do not have time and expertise to pick suitable stocks from the FMCG universe, you may consider investing in an exchange traded fund (ETF) of the same. An ETF invests in the same companies that comprise the index. ICICI Prudential AMC has launched an ETF NFO for the FMCG sector. The NFO closes on August 02, 2021. It is an open-ended Exchange Traded Fund (ETF) tracking Nifty FMCG Index. Hindustan Unilever, ITC, Marico, Colgate and Nestle are some of the key stocks forming the index.

“ICICI Prudential FMCG ETF provides exposure to a basket of securities in the FMCG sector. Higher inclination towards branded products, rising the Indian economy, investing in a sectoral fund could be a risky affair. Every sector follows a cycle. Increased digitisation and growing demand from rural areas, are expected to fuel the FMCG sector growth in India. One can say that this sector approximately accounts for more than half of consumer spending,” said Nimesh Shah, MD and CEO, ICICI Prudential AMC.

The Nifty FMCG index has gained nearly 6% year-to-date compared to over 11% returns in Nifty50. Looking into historical data, Nifty FMCG TRI has beaten the benchmark over a period of the last 10 years with 14.9% returns vs 12.1% benchmark return.

Should you invest?

Even though sectoral funds are considered risky, what works in favour of FMCG sector is that the demand always exists.

“FMCG sector is different from the IT or pharma which cannot perform in one pace. There will always be demand, especially due to surge in online transactions. However, one still needs to be cautious,” said certified financial planner Pankaj Mathpal.

“Investors need to track government policies which may leave an impact on FMCG companies. For example, government announcements may make or break the ITC stock. This NFO is not for a first-time investor. If you are a seasoned investor who already has some exposure in equities and may take more risk than others can consider it,” he added.

Mathpal further gives a comparison between a Nifty50 and Nifty FMCG ETF.

“Nifty or a Sensex ETF or an actively managed laregcap fund will be much more diversified than Nifty FMCG ETF. The impact of one stock doing bad in Nifty50 will be lesser than that in Nifty FMCG index. One has to be extremely careful when one invests in it. When to sell will be equally challenging,” said Mathpal.

Expert view

Certified financial planner Pankaj Maalda doesn’t advise his clients to invest in NFOs, especially those of sectoral funds. “We prefer diversified funds which have a track record of at least three years,” he said.

Track the suitability of FMCG sector exposure in your portfolio before you go for it. For a first-time investor, a Nifty50 or a Sensex ETF or a largecap fund will be a better choice.