Nippon Life India Asset Management has launched one-of-its-kind passive fund tracking Nifty 500 Equal Weight Index Fund. The fund will invest 0.20 per cent across 500 stocks that constitute the index.
The index itself will have 20 per cent and 30 per cent of large and mid-caps, respectively, while the remaining will be small-caps providing investors exposure across market-caps in 21 sectors.
The index will be rebalanced every six months and the fund has to rejig by selling off stocks that are out of the index while buying into the new entrants.
The approach tends to mitigate concentration risk typically associated with market-capitalisation-weighted indices and provides a unique opportunity to participate in the broader Indian market’s growth, said the fund house.
Smart-beta strategy
Sundeep Sikka, ED and CEO, Nippon India Mutual Fund said the smart-beta strategy of the newly launched fund will adopt equal weighing approach in contrast to popular indices such as Nifty 500, which use market-cap as a criteria for deciding on weightage.
The strategy eliminates non-systematic risks such as stock picking and portfolio manager selection by investing only in the Nifty 500 Equal Weight index stocks.
A market leader in passive funds, Nippon India MF offers 43 passive schemes including ETFs, Index Funds and Fund of Fund. It has one of the largest ETF asset of ₹1.47 lakh crore and commands a market share of 18 per cent as of July-end. Nippon India ETF commands 59 per cent share of ETF folios in the industry and 61 per cent volume share on NSE and BSE.
Even while giving the kicker of additional returns, Arun Sundaresan, Head ETF, Nippon India MF said in times of crisis and concentrated market movement, the Nifty 500 Equal Weight Index Fund may underperform in the market and other key indices.
However, he added deployment of 50 per cent of inflows into the scheme in small-cap stocks will not be a concern and it has been back tested under different circumstances.