The methodology of Index funds is to invest in a specific index and then replicate the underlying index’s performance. You could consider investing in index funds if you want to invest passively in various market capitalizations.
The popularity of passive investing has grown significantly, with index funds playing an important role in the investors’ portfolio. In Index funds, when a particular stock or sector performs well, it gets higher weightage in the index if market capitalization weighting strategy is used. However, in equal weight index funds you get the same set of top quality constituents but with a twist of equal weight for all stocks.
For instance, under the Nifty 50 Equal Weight Index, equal weightage is allocated (around 2% each) to each of the top 50 large-cap company’s stocks. Equal weight index funds are a good option for investors looking for balanced diversification in an index of their choice for their well-diversified portfolio.
Aditya Birla Sun Life Mutual Fund has launched Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund; it is an open-ended scheme tracking Nifty 50 Equal Weight TR Index.
On the launch of this fund, Mr A Balasubramanian MD and CEO of Aditya Birla Sun Life AMC said, “Equal allocation to the 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 like cement and cement products, pharma, metals and services, are better represented in the Nifty 50 Equal Weight Index. Over time, as markets and economy grow, we expect the Equal Weight (EW) Index to do better than Nifty 50.”
He further added, “It has outperformed the Nifty 50 over short and long term periods. Infact, some of the stock level polarisation in the base index that we saw in 2018-19 is already reversing sharply. In this backdrop Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund is an intelligent and simple investment option that provides opportunity to capitalise on broad based economic growth in the country.”
Table 1: Details of Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund
|Type||An open-ended scheme tracking Nifty 50 Equal Weight TR Index.||Category||Index Fund|
|Investment Objective||The investment objective of the scheme is to provide returns that closely correspond to the total returns of securities as represented by Nifty 50 Equal Weight TR Index, subject to tracking errors. The Scheme does not guarantee/indicate any returns. There can be no assurance that the schemes’ objectives will be achieved.|
|Min. Investment||Rs 500/- and in multiples of Re 1 thereafter. Additional purchase Rs 500/- and in multiples of Re 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||Nil|
|Fund Manager||Mr Lovelish Solanki||Benchmark Index||Nifty 50 Equal Weight TRI|
|Issue Opens:||May 19, 2021||Issue Closes:||June 02, 2021|
(Source: Scheme Information Document)
What will the Investment Strategy for Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund be?
The scheme will be investing its assets in the securities comprising the Nifty 50 Equal Weight Index; the top 50 large-cap companies out of the 100 large-cap companies. It will endeavour to provide returns that closely correspond to the total returns of securities as represented by Nifty 50 Equal Weight Index while minimizing the tracking errors.
The scheme will follow the passive investment strategy to track and replicate the performance of the underlying index. The constituents of Nifty 50 Index are part of Nifty 50 Equal Weight Index that allocates equal weightage to Nifty 50 stocks and provides better diversification at the stock and sectoral level than the Nifty 50 Index.
The equal weightage can help to lower the concentration risk of the portfolio and the automatic rebalancing on quarterly basis gives consistent exposure to top movers in the economy. The fund house believes that, as the economy moves into a phase of broad-based economic growth, such a strategy that provides equal opportunity to all portfolio stocks will shine against the strategy, which relies on the performance of a few ‘top performers’ only.
The scheme does not make any judgments about the investment merit of Nifty 50 Equal Weight TRI nor will it attempt to apply any economic, financial, or market analysis.
About the benchmark
The NIFTY50 Equal Weight Index represents an alternative weighing scheme to its market capitalization weighted parent index, the NIFTY 50 Index. Nifty 50 Equal Weight Index comprises of the same top 50 large cap companies that constitute the popular Nifty 50 Index, but weighted equally, as against market-cap based weightage.
In simple words, it follows an alternative weighting strategy where all 50 companies are weighted equally, i.e. 2% allocation to each company. The index’s portfolio is rebalanced quarterly, i.e. allocation to all 50 stocks is balanced back to 2% every quarter. This results in a periodic automatic profit booking since overweight stocks are sold and underweight stocks are bought.
The following is list of Top constituents and sector by their weightage as of now:
(Source: NSE Nifty 50 Equal Weight Index)
This scheme, apart from investing 95% of its assets in Equity & Equity related securities constituting the Nifty 50 Equal Weight Index, will also invest up to 5% of its assets in Debt and Money Market Instruments in order to meet the liquidity requirements.
Under normal circumstances, asset allocation will be as under:
Table 2: Asset Allocation for Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund
|Instruments||Indicative Allocation (% of net assets)||Risk Profile|
|Equity & Equity related securities constituting the Nifty 50 Equal Weight Index||95||100||Medium to High|
|Debt and Money Market Instruments||0||5||Low to Medium|
(Source: Scheme Information Document)
Who will manage Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund?
Mr Lovelish Solanki will be the dedicated fund manager for this scheme.
Mr Lovelish Solanki is a Fund Manager at Aditya Birla Sun Life AMC and he has over 10 years of experience in trading and dealing. Prior to this, Mr Solanki was associated with Union KBC Asset Management Co. Ltd. as Equity/Equity derivatives trader and with Edelweiss Asset Management Co. Ltd.
His qualifications include MMS (Finance) and BMS (Finance). Currently the schemes under his management are Aditya Birla Sun Life Nifty ETF, Aditya Birla Sun Life Sensex ETF, Aditya Birla Sun Life Gold Fund, Aditya Birla Sun Life Arbitrage Fund, Aditya Birla Sun Life Nifty Next 50 ETF, Aditya Birla Sun Life Banking ETF, Aditya Birla Sun Life Balanced Advantage Fund, Aditya Birla Sun Life Gold ETF, Aditya Birla Sun Life Nifty Smallcap 50 Index Fund, Aditya Birla Sun Life Nifty Midcap 150 Index Fund, Aditya Birla Sun Life Equity Savings Fund.
Fund Outlook – Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund
Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund offers access to investors to invest in the top 50 large-cap companies with an aim to balance stock and sectoral allocation equally and reduce concentration risk.
This fund holds an equal weighted investment strategy that aims to provide diversification across stocks and sectors. It is conducive to broad-based market rally and gives equal opportunity to constituents with potential to shine in the market.
Investors in this scheme will have access to leaders of the market and the growth potential of the top 50 large cap companies with low minimum investments and low expensive ratio. The automated index reconstruction on a quarterly basis will ensure your investment in the top performers of the economy.
While this approach can protect the portfolio from concentration risk, however if the market witnesses polarization (as witnessed over the past few years), you may miss out on the higher growth potential of select few stocks due to the cap on investment limit.
This scheme is suitable for investors seeking long-term capital growth through equal weight equity investments in the large-cap space. You must have a high-risk appetite, a long investment horizon of at least 5 years and your investment goals aligned with the fund’s objective.
This article first appeared on PersonalFN here