The Indian equity markets are expected to be highly volatile in the near term. Just when everyone awaited a stronger economic recovery, the rising infections due to the second wave of COVID-19 and issues over the shortage of vaccines are proving to be a hurdle. Moreover, there have been partial lockdowns in several parts of the nation, all this will increase risk towards the economic revival and influence the market performance. As a result, investors must be cautious about their investment portfolio and ensure to hold worthy investments.

In the past couple of years, various actively managed funds have been unable to outperform the benchmark indices and this scenario highlighted the passively managed funds category that is a low cost alternative, as many fund houses introduced such funds to draw investors’ interest.

To build well-diversified investment portfolio you may consider a combination of actively and passively managed funds; each has its own set of benefits and drawbacks. The popular vehicles to passive investing are ETFs and Index funds, which track a specific benchmark index to replicate the composition and generate similar returns.

Index funds have gained popularity among many investors as they offer ownership of wide variety of stocks, broad diversification, low risk and relatively low costs. These funds follow passive investment style, which reduces the stress for individual stock selection process. It also nullifies the risk associated with fund manager’s incorrect investment calls and eliminates individual biases. Index funds are regarded as a viable investment option especially among investors new to the mutual fund industry. If you are investing in a fund based on the index, you will eventually gain the market returns.

SBI Mutual Fund has launched SBI Nifty Next 50 Index Fund; it is an open-ended equity scheme tracking Nifty Next 50 Index. On the launch of this fund Mr Vinay M. Tonse, MD and CEO of SBI Mutual Fund said, “As a fund house, we have built a strong franchise in the passive investment space, in addition to our actively managed funds. SBI Nifty Next 50 Index Fund is a good opportunity for those who want to take advantage of the merits of passive investing and at the same time benefit from the growth potential of future market leaders which comprise the underlying index.”

Table 1: Details of SBI Nifty Next 50 Index Fund

Type An Open Ended Scheme tracking Nifty Next 50 Index. Category Index Fund
Investment Objective The investment objective of the scheme is to provide returns that closely correspond to the total returns of the securities as represented by the underlying index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.
Min. Investment Rs 5000/- and in multiples of Re 1 thereafter. Additional purchase Rs 1000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution cum Capital Withdrawal Option
Entry Load Not Applicable Exit Load
  • For exit on or before 1 Year from the date of allotment: 1%
  • For exit after 1 Year from the date of allotment: Nil
Fund Manager Mr Raviprakash Sharma Benchmark Index Nifty Next 50 Index
Issue Opens: April 28, 2021 Issue Closes: May 11, 2021

(Source: Scheme Information Document)

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

SBI Nifty Next 50 Index Fund will follow passive investment strategy by predominantly investing in stocks as closely as the proportion in Nifty Next 50 Index.

This scheme will aim to generate returns equivalent to the Total Returns Index of Nifty Next 50 index by minimizing the performance difference between the benchmark index and the scheme.

The scheme will replicate the underlying index and primarily invest in the securities comprising the Nifty Next 50 Index. However, due to changes in underlying index the scheme may temporarily hold securities, which are not part of the index.

The fund manager’s endeavour would be to rebalance the portfolio in order to mirror the index; however, there may be a short period where the constituents of the portfolio may differ from that of the underlying index. The investments that fall outside the underlying index as mentioned above shall be rebalanced within a period of 7 days.

About the benchmark

The Nifty Next 50 index represents the balance 50 companies from Nifty 100 after excluding the Nifty 50 companies. NIFTY Next 50 is computed using free float market capitalization method wherein the level of the index reflects total free float market value of all the stocks in the index relative to a particular base market capitalization value.

NIFTY Next 50 has a well-diversified portfolio across sectors with less concentrated exposure to any one sector.

The following is list of Top constituents and sector by their weightage as of now:

(Source: NSE Nifty Next 50 Index)

Apart from investing 95% of its assets in securities covered by Nifty Next 50 Index, this scheme will also invest up to 5% of its assets in Money Market instruments including triparty repo and units of liquid mutual fund in order to meet the liquidity requirements.

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

Table 2: Asset Allocation for SBI Nifty Next 50 Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Securities covered by Nifty Next 50 Index 95 100 Medium to High
Money Market instruments including triparty repo and units of liquid mutual fund 0 5 Low

(Source: Scheme Information Document)

Who will manage SBI Nifty Next 50 Index Fund?

Mr Raviprakash Sharma will be the dedicated fund manager for this scheme.

Mr Raviprakash Sharma is Fund Manager at SBI Mutual Fund and he has over 20 years of experience in Indian capital markets in various capacities including Portfolio Management and Dealing in equity shares on behalf of clients. Prior to this, he was associated with HDFC Asset Management Co. Ltd. as Sr. Manager – Portfolio Management Services, Citigroup Wealth Advisors India Pvt. Ltd. as Financial Advisor, Kotak Securities Ltd. as AVP – Non Discretionary PMS, Times Investors Services Pvt. Ltd. as AVP – Fixed Income Group, Birla Sun Life Securities Ltd. as Manager – Fixed Income Group.

Mr Sharma’s qualification includes, C.A and C.F.A(USA). Currently, other schemes managed by him are; SBI-ETF Gold, SBI Nifty Index Fund, SBI-ETF SENSEX, SBI Gold Fund, SBI-ETF Nifty Bank, SBI-ETF BSE 100, SBI-ETF Nifty Next 50, SBI- ETF Nifty 50, SBI ETF Sensex Next 50, SBI ETF Quality Fund & SBI Equity Minimum Variance Fund.

Fund Outlook – SBI Nifty Next 50 Index Fund

SBI Nifty Next 50 Index Fund is SBI Mutual Fund’s second index fund, in addition to the existing SBI Nifty Index Fund. This broadens the fund house’s portfolio in the passive investing segment, giving investors more options to match their investment goals.

This scheme will aim to replicate the Nifty Next 50 Index and invest in securities comprising the underlying index in similar proportion to provide returns in tune with the total returns of the constituent stocks of Nifty Next 50 Index.

The scheme will offer investors an access to growth of potential market leaders by passively investing in securities of the underlying index. The stocks comprising the underlying index are large cap companies beyond the Nifty50, which may generate sustainable returns in medium to long-term and are considered as potential leaders.

Being an Index fund, it follows passive investing and lowers the unsystematic risk exposure by driving returns through market participation. It also reduces the risk of stock selection and eliminates any behavioural biases limiting the role of fund manager. The underlying index offers investors diversification across sectors and relatively low volatility due to investment in large caps.

However, investing in this scheme is similar to investing in direct equity and is prone to high market risk and the fund’s performance will depend on the performance of the underlying index, subject to tracking errors.

Therefore, if you are considering to invest in SBI Nifty Next 50 Index Fund, ensure you hold a high-risk appetite, a long investment horizon and an investment objective aligns with the fund.

This article first appeared on PersonalFN here

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