Index funds are a kind of mutual funds that replicate the underlying index and track an index representing a particular market cap segment, style or asset class. Index funds are a low-cost investment option that offer diversification to a particular asset class along with transparency to investors, as the underlying index constituents are available on the exchange.
Over the last few years, passive investing has gained traction and many investors prefer to invest in passively managed funds instead of actively managed funds as they carry lower expense ratios and limits fund manager’s involvement. Investors seeking to diversify their portfolio towards midcap funds and have a long investment horizon may consider investing in passively managed Midcap funds.
A fairly diversified index provides exposure to businesses spread across sectors. The Nifty Mid-cap index offers investors with an opportunity to invest in Mid-cap companies with potential to become the future large caps. Investors may benefit from the growth story of these mid-cap companies and generate optimal risk-adjusted returns.
ICICI Prudential Mutual Fund has launched ICICI Pru Midcap 150 Index Fund. It is an open-ended Index Exchange Traded Fund tracking the Nifty Midcap 150 Index.
On the launch of this fund, Mr Chintan Haria, Head-Product Development & Strategy, ICICI Prudential AMC said, “The scheme will invest in well-diversified Nifty Midcap index constituents spread across key industries. By investing in this Fund, investors can participate in the growth story of many of the midcap stocks that have the potential of becoming large caps.”
Table 1: Details of ICICI Pru Midcap 150 Index Fund
|An open-ended Index Exchange Traded Fund tracking Nifty Midcap 150 Index.
|The investment objective of the scheme is to provide returns before expenses that closely correspond to the total return of the underlying index, subject to tracking errors. However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.
|Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs. 500/- and in multiples of Rs. 1 thereafter.
|Rs 10/- per unit
|– Mr Kayzad Eghlim
– Mr Nishit Patel
|Nifty Midcap 150 TRI
|December 03, 2021
|December 17, 2021
(Source: Scheme Information Document)
The investment strategy for ICICI Pru Midcap 150 Index Fund will be as follows:
ICICI Pru Midcap 150 Index Fund will aim to predominantly invest in stocks constituting the Nifty Midcap 150 Index in the same proportion as in the Index and will endeavour to track the benchmark index.
The scheme will invest in a well-diversified Nifty Midcap 150 index constituents that are spread across key industries. A very small portion (0-5% of the Net Assets) of the fund may be kept liquid to meet the liquidity and expense requirements.
Subject to Regulations the fund may also use various derivatives and hedging instruments from time to time, as would be available and permitted by SEBI, in an attempt to protect the value of the portfolio and enhance the Unitholders’ interest.
The performance of the scheme may not be commensurate with the performance of the underlying index on any given day or over any given period. Such variations are commonly referred to as the tracking error. The scheme intends to maintain a low tracking error by closely aligning the portfolio in line with the index.
The scheme being an index fund, will follow a passive investment strategy and track the performance of the underlying index in order to generate parallel returns.
Under normal circumstances, the asset allocation of the scheme will be as under:
Table 2: Asset Allocation for ICICI Pru Midcap 150 Index Fund
|Indicative Allocation (% of net assets)
|Equity and Equity related securities of companies constituting the underlying index (Nifty Midcap 150 Index)
|Medium to High
|Units of debt schemes, TREPs#, Repo and Reverse Repo, cash & cash equivalents.
|Low to Medium
|Units of debt ETFs
|Low to Medium
(Source: Scheme Information Document)
The stocks comprising the underlying index are periodically reviewed by Index Service Provider. A particular stock may be dropped or new securities may be included as a constituent of the index. In such an event, ICICI Pru Midcap 150 Index Fund will endeavour to reallocate its portfolio but the available investment/ disinvestment opportunities may not permit precise mirroring of the underlying index immediately.
Similarly, in the event of a constituent stock being demerged / merged / delisted from the exchange or due to a major corporate action in a constituent stock, ICICI Pru Midcap 150 Index Fund may have to reallocate the portfolio and seek to minimize the variation from the index.
In such events, it may be more prudent for the fund to take exposure through derivatives of the index itself or its constituent stocks in order to minimize the long term tracking error.
About the benchmark
The Nifty Midcap 150 Index Represents the next 150 companies (ranked 101-250) based on full market capitalisation. This index intends to measure the performance of mid market capitalisation companies.
Nifty Midcap 150 Index is computed using free float market capitalisation method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value. This Index is re-balanced on semi-annual basis i.e. January and July.
The following is the list of top constituents and sector under the index by their weightage as on October 30, 2021:
Who will manage ICICI Pru Midcap 150 Index Fund?
Mr Kayzad Eghlim and Mr Nishit Patel will be the dedicated fund managers for this scheme.
Mr Kayzad Eghlim will be managing the equity portion of the portfolio. He has over 30 years of experience and holds MBA, M.Com, and B.Com degree. Prior to joining ICICI Prudential AMC, he was associated with IDFC Investment Advisors Ltd. as Dealer Equities, Prime Securities as Manager, Canbank Mutual Fund (IS Himalayan Fund) as Fund Manager, Canbank Mutual Fund as Equity Dealer, assisting the Fund Manager and worked with the Primary Market Department (IPO) of Canbank Mutual Fund at the beginning of his career.
At ICICI Prudential Mutual Fund, Mr Kayzad currently manages ICICI Prudential Equity – Arbitrage Fund, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex ETF, ICICI Prudential Nifty Index Fund, ICICI Prudential Equity Savings Fund, ICICI Prudential Nifty Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bharat 22 FOF, ICICI Prudential Bank ETF, ICICI Prudential Midcap Select ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, ICICI Prudential IT ETF,ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential Healthcare ETF. and ICICI Prudential FMCG ETF
Mr Nishit Patel is a Chartered Accountant and B.com graduate. He joined ICICI Pru AMC in November 2018 under ETF Business and has an overall 3 years of experience in fund management.
At ICICI Pru AMC, Mr Patel currently manages ICICI Prudential Midcap Select ETF, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex Index Fund, ICICI Prudential Nifty Index Fund, ICICI Prudential Regular Gold Savings Fund (FOF), ICICI Prudential Gold ETF, ICICI Prudential Sensex ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential BHARAT 22 FOF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bank ETF, ICICI Prudential Private Banks ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential FMCG ETF and ICICI Prudential Healthcare ETF.
Fund Outlook – ICICI Pru Midcap 150 Index Fund
ICICI Pru Midcap 150 Index Fund holds the primary objective to replicate the composition of the NIFTY Midcap 150 Index and to generate returns that commensurate with the performance of the Index, subject to tracking errors.
The scheme will provide investors an exposure to the midcap segment, as it will invest in constituents of well diversified Nifty Midcap 150 index that is spread across the key industries. It aims to participate in the growth story of many midcap stocks having potential of becoming large caps in future. Being a passively managed scheme, investors will not be exposed to fund manager’s risk of active stock selection.
However, due to the recent emergence of the ‘Omicron’ (a new variant of the coronavirus) classified as a ‘variant of concern’ and ‘high-risk’ by the WHO; the market may witness intensified volatility which could weigh down on the NIFTY Midcap 150 Index and its constituents. If restrictions and localised lockdowns are once again imposed by the government, it could potentially pull down the economic growth and earnings. For now, the clear direction for the equity market from the current elevated levels is unknown.
The scheme will be prone to higher volatility in the near term and the fortune of this scheme will depend on the performance of the underlying index. Thus, this scheme is suitable for investors who can stomach high risk and keep a longer investment horizon of at least 5-7 years to sustain the market volatility in the near term.
This article first appeared on PersonalFN here