Though the mid-caps and small-caps are running hot for quite some time now, the broader indices are chugging along nice too and have no reason to stop yet, albeit a few pace-drops here and there. Fundamentally-sound stocks are still finding ways to eat into the market share of weaker players and, wherever applicable, the unorganised market too. And this calls for a balanced approach across market-caps.

With this backdrop, Navi Nifty 500 Multicap 50:25:25 Index Fund has opened for subscription on July 18 and the NFO is open until July 30.

Navi Mutual Funds (a part of Navi, a fintech company founded by Sachin Bansal, co-founder of Flipkart), is a relatively-new player in the AMC space and the AUM as of March 2024 stands at around ₹4,944 crore.

While a slew of multi-cap funds have been launched, this is the only fund, till date, to give exposure to the Nifty 500 Multicap 50:25:25 Index.

About the index

The Nifty 500 Multicap 50:25:25 Index launched in December 2020 is a relatively-new index. This multi-cap index offers investors an opportunity to gain diversified exposure across large-, mid- and small-cap companies forming part of the Nifty 500 universe, in the ratio of 50:25:25 respectively. The allocation helps give a nice balance in the risk-reward ratio by reducing concentration in any single market-cap category.

The closest peer, Nifty 500 Index, on the other hand, is usually skewed towards large-caps with the same constituting around 72 per cent, while mid-caps and small-caps are around 19 per cent and 9 per cent respectively. The constituents of this Index are the top 500 companies filtered based on market capitalisation and hence, naturally large-caps form the bulk of this index.

Multi-cap funds, to compare with actively-managed funds, have a minimum allocation of 25 per cent across large-, mid- and small-caps while the remaining 25 per cent can be allocated dynamically across equity, debt or money market instruments. Thus, performance is significantly dependent on fund managers.

Comparison

Both the Nifty 500 Index and Nifty 500 Multicap 50:25:25 Index has comfortably outperformed Nifty as illustrated in the chart, while Nifty 500 Multicap 50:25:25 has also relatively outperformed Nifty 500.

The relatively-better exposure to mid-caps and small-caps, albeit with higher risk, provides a better probability for higher growth prospects over the long term for investors with a higher risk appetite. However, this fund is better placed in the risk scale when compared with mid-cap and small-cap funds.

While mid-caps and small-caps are outperforming the bellwether indices since Covid-19, it would not be wise to assume the trend to continue in the future and hence, a balanced approach would be prudent.

As is the case with index funds in general, the expense ratio for Navi Nifty 500 Multicap 50:25:25 Index Fund stands on the lower end of the spectrum at 0.26 per cent and there is no exit load.

This index fund will have a defined multi-cap flavour with specified allocations. Investors will need to assess whether they should take the active or passive route for multi-cap exposure after careful consideration.

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