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The Navi Total Stock Market US Specific Equity Passive FoF Regular Growth predominantly invests in the Vanguard Total Stock Market ETF (VTI) and may also invest in the Schwab Total Stock Market Index Fund (SWTSX), in line with the scheme objective. The VTI tracks the performance of the CRSP US Total Market Index, which has more than 4,000 constituents across small, mid, and large-cap companies. With such diversified investment across different market caps, the fund seeks to gain capital appreciation from the broader performance of the US equity market across sectors such as technology, healthcare, financial services, consumer businesses, and industrials. In addition, this scheme may be suitable for investors who have a very high risk tolerance and a longer investment horizon.

In the Growth Option, returns generated by the scheme are retained within the fund and reflected in changes in the Net Asset Value (NAV). No distributions are made to investors. This option is suitable for investors seeking long-term capital appreciation.

Pros

This scheme offers investors access to a globally diversified equity portfolio through a single mutual fund scheme. By investing across the broader US stock market, the fund offers the following benefits.

1. Passive Investment Structure

The scheme follows a passive investment approach as it invests in an underlying ETF that tracks the CRSP US Total Market Index. Therefore, the portfolio allocation in the scheme is driven by index-based benchmark methodology, and it may be suitable for investors who are seeking simple solutions to invest in the US markets.

2. Wide Reach of Various U.S. Listed Stocks

The scheme allocates funds to the Vanguard Total Stock Market ETF. This ETF covers large-, mid-, and small-cap stocks listed on U.S. stock exchanges. This wide range helps reduce concentration risk associated with exposure to a single market-cap segment.

3. International Equity Participation

The VTI ETF includes U.S.-listed companies operating across technology, automotive, semiconductor manufacturing,and communication platforms. Therefore, the scheme’s international equity allocation could assist in diversifying exposure to different drivers of economic growth.

4. Wide Scope of Diversification

The VTI ETF captures broad U.S. market exposure through diversified index exposure. Hence, longer participation in such a market structure may support portfolio diversification beyond domestic economic and sector cycles. However, returns remain subject to market risk and the underlying fund’s performance.

Cons

While the scheme provides broad international diversification, investors should also evaluate its limitations associated with overseas passive investing.

1. International Market Risks

The investment portfolio is subject to market changes in the economy of the United States, monetary policy decisions, and the general state of geopolitical conditions. Therefore, changes in overseas taxation rules, regulatory frameworks, or restrictions on international investments may affect the scheme’s performance. Currency exchange rate fluctuations between the Indian rupee and the U.S. dollar may also influence investor returns.

2. Portfolio Allocation Challenges

If any sector occupies higher weights within the benchmark, the fund will automatically maintain corresponding exposure levels. This approach may lead to concentration risk in dominant sectors in the U.S. market**, particularly in sectors such as information technology where benchmark weights may be relatively high**.

3. Potential Liquidity Constraints During Overseas Market Stress

Since this scheme predominantly invests in overseas securities using a feeder fund structure, disruption in the global market might affect its liquidity and transaction processing efficiency. Furthermore, international settlement timelines and foreign market operational issues may also arise during periods of market stress. Hence, such effects may significantly affect the scheme’s performance.