I recently wrote about the Hang Seng BeEs ETF, which will give Indian investors a chance to invest in Hong Kong equities, and shortly after-wards, I came across the HSBC Brazil Equity Fund, which is an open ended fund of fund schemes that targets Brazil.
Brazil based funds came into focus some time ago, when Brazil won the bid for hosting the 2016 Olympics, and at that time I had compiled a list of Brazil ETFs available for American investors. As far as I know, currently there are no funds in India that target Brazil.
HSBC Brazil Equity Fund
Even HSBC Mutual Fund has just filed the draft prospectus with SEBI and so far they haven’t declared the date that this fund offer will open on. The HSBC Brazil Equity Fund is a fund of funds scheme, which means it will invest in other mutual funds, and in this case – it will primarily invest in the units of HGIF Brazil Equity Fund.
Here is how the indicative allocation of HSBC Brazil Equity Fund looks like:
| Instruments |
Minimum Allocation % |
Maximum Allocation % |
|
Units / Shares of HGIF Brazil Equity Fund or other similar overseas funds
|
80
|
100
|
|
Money Market Instruments
|
0
|
20
|
As regular readers of this blog will know there is no entry load for the fund, but there is an exit load of 1% if the units are redeemed or switched within 1 year from the date of investment.
There will be growth and dividend option for this fund, and the minimum application amount will be Rs.10,000.
The fund will primarily be invested in equities so you are exposed to market volatility and possible loss of capital like any other equity fund.
Since HSBC Brazil Equity fund is an international fund, you will also be exposed to currency risk in addition to the usual risks associated with equity. This is because the base currency will be the Indian Rupee, while the fund will be denominated in foreign currencies like the US Dollar. So any exchange rate movement between these currencies will impact your returns.
Expenses of the HSBC Brazil Equity Fund
The HSBC Brazil Equity Fund will have an expense ratio of 0.75% of its own, and then it will also indirectly bear the expenses of the HSBC GIF Brazil Equity Fund. Their expenses are classified into Management & Distribution Expenses and Operating Expenses.
The Management & Distribution Expenses for a retail class share is 1.75% and for an institutional class share is 0.875%. In addition to this, they charge 1% for administrative, operating and servicing expenses.
It is not clear to me whether the shares bought will come under the retail category or not, but considering the higher side of the expenses, the total expense ratio comes out to be: 0.75% + 1.75% + 1% = 3.5%.
Insurance Cover with the HSBC Brazil Equity Fund SIP Plus
Now, here is a novel thing. There is a SIP Plus plan that offers insurance cover to the first holder at no additional cost.
Here is what the prospectus says about the Insurance plan:
Eligible transactions
The following transactions during the specified period are eligible for the insurance cover under HSBC SIP Plus. Specified period means the period during which HSBC SIP Plus is open to investors.
Any SIP transaction for a minimum of Rs.2000 per month in eligible schemes and a minimum tenure of 36 months. Other options on tenure are 48 months and 60 months.
Any STP transaction for a minimum of Rs.2000 per month in to eligible schemes and a minimum tenure of 36 months. Other options on tenure are 48 months and 60 months.
Insurance cover
The amount of insurance cover will be computed as follows: –
For each eligible SIP transaction, cover is equal to tenure multiplied by installment
For each eligible STP transaction, cover is equal to tenure multiplied by installment
Details of insurance cover
Under HSBC SIP Plus, the eligible investors will be entitled to Critical Illness Cover provided by ICICI Lombard General Insurance Company Limited (‘IL’) subject to the terms & conditions detailed below. The Critical Illness Cover provided by IL will be under the Master Policy for the Group Term Insurance to be entered into between IL and the AMC. A copy of the Master Policy would be available for inspection at the registered office of the AMC. The AMC reserves the right to withdraw / modify HSBC SIP Plus proposition at its discretion.
This is interesting, and it will be interesting to note how many people find the insurance cover attractive enough to go for longer SIP plans.
In summary, I think you need to keep these three things in mind while evaluating the fund:
- Equity focused on Brazil (duh)
- Relatively high expenses
- Insurance cover (that you may or may not need)
Disclaimer: This is just a summary of the features of this mutual fund, and is not a buy or sell recommendation.
