With the Indian market indices NIFTY 50 and S&P BSE Sensex hitting all-time high and recovering the losses from the market crash, most mutual funds have witnessed improvement in performance.

However, there are still many actively managed funds that have been unable to catch up with the benchmark. Therefore, Passive investing strategy is increasingly becoming popular among mutual fund investors. Passive funds are less complex and it tracks a particular benchmark to replicate the composition and generate returns.

In the last couple of years, mutual funds have launched passive funds that track various categories (equity, debt, gold), themes (ESG, global), sectors (pharma, IT), as well as other innovative products to help investors create a diversified portfolio.

Both actively managed funds and passively managed funds have pros and cons each. The major difference is that, actively managed funds make it possible to beat the benchmark and exhibit better returns while the passively managed funds will be similar to the benchmark performance.

In the wake of passive funds gaining popularity, Kotak Mutual Fund has launched Kotak Nifty Next 50 Index Fund. It is an open-ended scheme replicating/tracking Nifty Next 50 index, to achieve the investment objective to generate returns that are commensurate with the performance of the Nifty Next 50 Index.

However, there is no assurance that the objective of the scheme will be realized.

Table 1: Details of Kotak Nifty Next 50 Index Fund

Type An open ended scheme replicating/ tracking Nifty Next 50 index Category Index Fund
Investment Objective The investment objective of the scheme is to replicate the composition of theNifty Next 50 and to generate returns that are commensurate with theperformance of the NIFTY Next 50 Index, subject to tracking errors.However, there is no assurance that the objective of the scheme will be realized.
Min. Investment Rs 5,000 and in multiples of Re 1/- for purchases and Rs. 0.01 for switches.
Additional Purchase Rs. 1000/- and in multiples of Rs. 1 for purchases and Re 0.01 for switches
Face Value Rs 10/- per unit
SIP/STP/SWP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load Nil
Fund Manager
  • Mr Devender Singhal
  • Mr Satish Dondapati
Benchmark Index Nifty Next 50 Index TRI
Issue Opens February 17, 2021 Issue Closes February 24, 2021

(Source: Scheme Information Document)

What will be the Investment Strategy for Kotak Nifty Next 50 Index Fund?

Kotak Nifty Next 50 Index Fund will follow passive investment strategy with investments in stocks in the same proportion as in NIFTY Next 50 Index.

The investment strategy would revolve around reducing the tracking error to the least possible through rebalancing of the portfolio, taking into account the change in weights of stocks in the index as well as the incremental collections/redemptions from the Scheme.

A small portion of the net assets will be held as cash or will be invested in debt and money market instruments permitted by SEBI/RBI including TREPS or in alternative investment for the TREPS as may be provided by the RBI, to meet the liquidity requirements under the Scheme.

About the Index

The NIFTY Next 50 Index represents 50 companies from NIFTY 100 after excluding the NIFTY 50 companies. The NIFTY Next 50 Index represents about 10% of the free float market capitalization of the stocks listed on NSE as on March 29, 2019.

Below mentioned is the list of Top constituents and sector by their weightage as of now.

(Source: NSE Nifty Next 50 Index)

The scheme apart from investments in stocks in the same proportion as in NIFTY Next 50 Index, it will invest up to 5% of its assets in units of debt and money market securities to meet the liquidity requirements under this scheme.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of Kotak Nifty Next 50 Index Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related securities covered by the NiftyNext 50 Index* 95 100 Medium to High
Debt and Money Market Securities# 0 5 Low to Medium

*Exposure to equity derivatives of the index itself or its constituent stocks may be required in certain situations wherein equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period etc. The gross position to such derivatives will be restricted to 50% of net assets of the scheme.
#Money Market instruments includes commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time.

(Source: Scheme Information Document)

Who will manage Kotak Nifty Next 50 Index Fund?

Kotak Nifty Next 50 Index Fund will be managed by Mr Devender Singhal and Mr Satish Dondapati

Mr Devender Singhalis Fund manager at Kotak Mahindra Asset Management Company Ltd. He has over 18 years of experience in equity research and fund management and his qualifications include BA (H) Mathematics and PGDM (Finance).

Prior to joining Kotak AMC Mr Singhal was associated with the PMS divisions of Kotak, Religare, Karvy and P N Vijay Financial Services. Currently schemes managed by him are; Kotak Asset Allocator FundKotak PSU Bank ETFKotak Debt Hybrid FundKotak Nifty ETFKotak Banking ETFKotak Sensex ETFKotak NV 20 ETFKotak India Growth Fund Series 4

Mr Satish Dondapati is Fund Manager- ETF at Kotak Mahindra Asset Management Company Ltd. He has over 12years of experience in ETF and his qualification is MBA (Finance). Prior to joining Kotak AMC, he worked with Centurion Bank of Punjab in the MF product team.

Currently schemes managed by him are; Kotak Sensex ETFKotak PSU Bank ETFKotak Nifty ETFKotak Banking ETFKotak NV 20 ETFKotak Gold ETF.

Fund Outlook – Kotak Nifty Next 50 Index Fund

As a significant number of actively managed mutual funds have turned out be underperformers in the past couple of years, Index funds have been gaining momentum. Unlike actively managed funds, index funds do not have to limit their exposure to single stock. Thus, they can benefit immensely when there is rally in index heavyweights.

Kotak Nifty Next 50 Index Fund will invest in the Nifty Next 50 Index stocks, which is a part of NIFTY 100 after excluding the NIFTY 50 stocks. These are large-cap stocks that may provide stable returns in medium term to long-term investment horizon.

The fund’s performance will depend on the market conditions and benchmark performance of Nifty Next 50 Index. The fund manager has a limited role to play, tracking the underlying index and implementing any changes in the investment portfolio. Consequently, the performance of the fund will mirror the performance of the underlying index, subject to tracking error.

It is noteworthy, that this is similar to investing in direct equity and is prone to volatility.

If you are looking to benefit from the growth potential of next ‘blue-chip’ stocks, you can consider investing in Kotak Nifty Next 50 stocks, after considering its suitability based on your risk appetite, investment horizon, and financial goals.

This article first appeared on PersonalFN here


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