Aditya Birla Sun Life AMC has launched Nifty 50 Equal Weight Index Fund, an open ended scheme tracking the Nifty 50 Equal Weight TR Index. The NFO, which opened on Wednesday, closes on June 2.
Unlike Nifty 50, which gives higher weightage to companies with higher market cap, the equal weight index treats all the constituents equally irrespective of their market cap.
Reduces concentration risk
The index keeps the allocation of the constituent companies at 2 per cent each. This reduces the concentration risk significantly at an individual stock and overall sector level. The index is automatically re-constituted every six months in line with the Nifty 50, allowing for natural selection of top movers. Additionally, the portfolio is rebalanced on a quarterly basis, leading to periodic profit booking.
Since each stock has 2 per cent weightage, if any stock’s allocation increases as a result of market action then on the rebalancing date, the excess percentage of the stock will be sold leading to an automatic profit booking. The proceeds will be re-invested into stocks which have fallen and have less than 2 per cent allocation.
A Balasubramanian, Managing Director, Aditya Birla Sun Life AMC, said equal allocation to 50 large cap companies can benefit from growth opportunities across the board rather than relying on the performance of few heavyweights.
With a period of broad based economic recovery on the anvil, high growth sectors such as cement and cement products, pharma, metals and services, are better represented in the Nifty 50 Equal Weight Index, he said.
“As markets and economy grow, we expect the Equal Weight Index to do better than Nifty 50. It has outperformed the Nifty 50 over short and long term periods,” he added.
In fact some of the stock level polarisation in the base index that we saw in 2018-19 is already reversing sharply, he said.