What are the benefits of investing in MNCs?

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When it comes to stock investing, investors are always looking for companies that are fundamentally sound and able to endure market fluctuations. Even during the pandemic, some businesses managed to emerge from the situation relatively unscathed. Multinational corporations (MNCs) are one such type of business.

An MNC’s common traits include a strong global brand, a solid balance sheet, a technological advantage, strong management, and, in most cases, a wide moat. As a result of these traits, such businesses can resist a wide range of problems. Even if a negative event occurs in one country, a company’s presence in multiple countries around the world allows it to continue doing business without having a significant impact on the overall picture.

There are various avenues available to an Indian investor wishing to gain exposure to big multinational corporations. Companies like these can be found in sectors including consumer, automobiles, metals, medicine, IT, engineering, and many others in the Indian listed universe.

As consumers, we rely on many of these businesses to meet our needs from breakfast to dinner. For example, we begin the day by brushing our teeth with HUL or Colgate toothpaste and drinking Nestle tea or coffee, among other things. This example can be applied to laundry, automobiles, and medications for general health, among other things. 

You can either invest directly in these companies or rely on MNC-themed mutual funds to do the job for you.

What’s more, investors now have the choice of investing in publicly traded international MNCs such as Amazon, Caterpillar, Bank of America, Ralph Lauren, and several other similar mega-corporations.

Diversification to overseas markets aids in allowing an investor’s portfolio to take benefit of stocks listed outside of India, as markets around the world perform differently each year. While not every fund house would choose this option, some MNC Funds in India will invest in multinational companies with operations all over the world.

According to the SEBI definition of an MNC Fund, such a scheme must invest at least 80% of its assets in MNCs, with the remaining 20% being invested in any other instrument. Because MNC funds are thematic, investors are likely to be skeptical because entry and exit points are crucial when investing in a thematic fund. 

The MNC theme, on the other hand, is in a different league. This is because, although being thematic, an MNC-based fund’s return profile has been reasonably stable over market cycles. Because multinational corporations are often cash-rich and have higher corporate governance norms, they are commonly regarded as high-quality businesses. MNC-based funds have successfully managed to reduce the downside even during tumultuous times.

Given the fund’s characteristics, a knowledgeable investor may want to include an MNC fund in their core portfolio. An investor with a reduced risk appetite, on the other hand, may want to include this fund in their satellite portfolio. Investors can benefit from the stability and long-term growth that these products can give in any case.

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