Parag Parikh Mutual Fund Is Launching S&P 500 and Nasdaq 100 Fund of Funds

Parag Parikh Mutual Fund (PPFAS) has made a massive announcement that is set to change how Indian retail investors access the US stock market. The fund house has announced the details of two new passive overseas equity funds: the ‘Parag Parikh IFSC S&P 500 Fund of Fund’ and the ‘Parag Parikh IFSC Nasdaq 100 Fund of Fund.’

For the past few years, investing abroad has been a challenge for Indians, but this launch promises to open a new window of opportunity. In this blog, we will go deep into this topic, covering everything you need to know about these funds, how they work, and why this matters for your portfolio.

What Exactly is PPFAS Launching?

PPFAS is launching two specific "Funds of Funds" (FoFs) through their subsidiary in GIFT City (PPFAS Alternate Asset Managers IFSC Private Limited).

Here is the simple breakdown of what these funds are:

• The Goal: These are passive funds designed to allow Indian investors to invest in the biggest companies in the USA.
• The Structure: They are Funds of Funds. This means they do not buy stocks (like Apple or Microsoft) directly. Instead, they collect money from investors and invest it in existing international ETFs (Exchange Traded Funds) that track the US markets.
• The Two Options:
  1. S&P 500 Fund: Tracks the 500 leading publicly traded companies in the US. This represents the core of the American economy.
  2. Nasdaq-100 Fund: Tracks the 100 largest non-financial companies on the NASDAQ exchange (mostly technology giants).
• Currency: These are dollar-denominated funds based in GIFT City.

How Will They Work?

For a beginner, understanding the mechanism is important. Here is how the money flows:

• Investment Strategy: The fund will take the money collected from Indian investors and invest it directly into overseas ETFs.
• Asset Allocation:
  • 90% – 100%: Invested in ETFs linked to the S&P 500 or Nasdaq-100 indices.
  • 0% – 10%: Invested in debt securities (for liquidity management).
• Accumulating Nature: The funds will invest in "accumulating" ETFs. This means dividends are reinvested rather than paid out, which helps in compounding and tax efficiency.

Fund Features: The Key Details

If you are planning to invest, here are the specific features and rules you need to know:

• Minimum Investment: You need a minimum initial investment of US $5,000.
• Who Can Invest: It is open to Indian resident individuals, corporates, trusts, and partnership firms.
• Expense Ratio (Fees):
  • Direct Plan: Total Expense Ratio (TER) is roughly 0.30% (Max 0.40% including underlying funds).
  • Regular Plan: Total Expense Ratio (TER) is roughly 0.60% (Max 0.70% including underlying funds).
• Liquidity: There is no lock-in period and no exit load. You can withdraw your money when you need to.
• Tax & Costs:
  • No Inheritance Tax: According to the fund house, there are no inheritance tax implications for Indian investors.
  • No Forex Hassles: Investors in these FoFs won't have to deal with the complex forex conversion and transaction costs usually involved when you buy US stocks directly.
  • Capital Gains: The redemption value (NAV) will be calculated based on post-tax rules depending on whether your holding period is short-term or long-term (less than or more than 2 years).

What the CEO of PPFAS Thinks

Neil Parikh, the Chairman & CEO of PPFAS, views this as a bridge for Indian investors to access global markets efficiently. Here is his perspective:

• Tax Efficiency: He notes that investing in accumulating ETFs/UCITS is tax-efficient compared to replicating the index directly. This is because transaction costs are minimal, and there is no "churn" (buying and selling) or dividends that would trigger immediate taxes.
• Future Plans: Neil Parikh mentioned that a third, active global equity fund is planned for the next financial year.
  • This future fund will follow the classic PPFAS philosophy: buying large companies with global revenue, strong cash flows, and clean governance at reasonable valuations.

What Was the Problem?

To understand the value of this launch, we have to look at the recent history of international investing in India:

• The Dead End: For the last three years, Indian investors trying to start a SIP in an international mutual fund faced a wall. Schemes were either closed or only accepting token amounts.
• The Reason: This wasn't because of a lack of demand. It was due to regulations. Indian mutual funds collectively hit the industry-wide limit (ceiling) on how much they could invest overseas.
• The Solution: PPFAS is using a new route through GIFT City’s International Financial Services Centre (IFSC).
• The "Outbound" Bridge: This launch creates a parallel route. It allows Indian residents to access US equity funds under the RBI’s Liberalised Remittance Scheme (LRS), bypassing the congested domestic mutual fund channel.

Conclusion

This is not just another product launch; it is a significant shift for Indian retail investors. PPFAS, known for its sensible approach to global investing, is building a bridge that allows you to own a piece of the world's biggest companies without the regulatory roadblocks faced by traditional mutual funds.

With a transparent structure, low costs, and the backing of the S&P 500 and Nasdaq-100 indices, these funds offer a promising avenue for diversifying your portfolio. The funds have been filed with the regulator, and the New Fund Offer (NFO) is expected within a quarter.

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