Principal Asset Management has launched Principal Large Cap Fund that will invest predominantly in Indian and US large-cap equities.

The new fund offer (NFO) is open until October 12. It will reopen for subscriptions shortly after the closure of the NFO.

The fund will allocate 80-85 per cent of its corpus to the top 100 Indian large-cap stocks by market capitalisation. The balance of up to 15 per cent will be actively invested in US stocks with a market-cap higher than $50 billion.

Principal Large Cap will be benchmarked against the Nifty 100 Total Return Index.

The fund plans to build a diversified portfolio comprising 50-60 companies.The scheme will take a sector-agnostic approach with a bottom-up stock- selection style.

By also investing in US stocks, the fund seeks to benefit from the different market cycles in the two countries and capitalise on any potential depreciation of the rupee against the dollar. For the foreign investments, the fund house will have access to advice and research from the US-based PGI equity team.

Investment options

Principal Large Cap offers two unique facilities — SMART and My Gain. The SMART plan aims to help you invest your money in a staggered manner in the fund.

This facility is available exclusively for NFO investors wherein the total amount invested during the NFO will be deployed in four equal parts.

On the date of allotment (October 19, 2020), 25 per cent of the total invested amount will be deployed in the fund and the remaining 75 per cent will be held in Principal’s liquid fund.

In November, another 25 per cent will be invested if the Nifty 100 falls 3 per cent from the date of initial allotment. If such a fall does not happen, the amount will be moved from the liquid fund to Principal Large Cap on the last day of the month. In December and January, too, a similar strategy will be adopted to move money from the liquid fund into the large-cap fund.

The My Gain facility allows investors to set a target rate of return, and shift the appreciated amount to any Principal fund of investor’s choice, when the target rate is achieved.

Our take

Currently, there are quite a few funds focussed on the US markets. Thanks to the bull run, funds such as Motilal Oswal NASDAQ 100 Exchange Traded Fund and Franklin India Feeder - Franklin US Opportunities, for instance, have delivered returns of 53.5 per cent and 44.7 per cent, respectively, over the past year, triggering investor interest in US equities and US-focussed schemes.

The Principal fund though takes only up to 15 per cent exposure to US large-caps.

Large-cap funds which invest in the Indian markets have delivered average returns of 0.36 per cent, 5 per cent and 7.7 per cent over the past one, three and five-year time-frames.

Exposure to US equities may bring diversification benefits.

As far as the investment options go, investors always have the choice to use the SIP route instead of the SMART facility.

While SMART is available only during the NFO period, SIPs can be done at any time.

Also, the transfer from the liquid fund under the SMART facility will attract capital gains tax.

Under the ‘My Gain’ facility, investors should keep in mind the exit load and capital gains tax implications when switching out.

Also, you need to be careful about selecting the fund into which you will be investing the gains.

Since capital gains tax is anyway applicable, whether it is a switch or redemption, you can also redeem and invest in funds outside Principal MF.