Investing in Exchange Traded Funds (ETFs) is one of the convenient ways for investors who have long-term goals and want to invest in equity without taking too much risk. ETFs aim to replicate a particular index and offer a diversified portfolio of stocks; this reduces the fund managers’ risk of any bias while stock selection.

Moreover, amid volatile market conditions, the drawdowns in an exchange traded fund tends to be less sharp compared to direct investing in stocks. By investing in ETFs, one can get market-linked returns without the additional risk of security selection or timing the market. If you prefer to invest in ETFs to keep the cost of investing low, and as a stepping stone towards their exposure to equity markets then passively managed mutual fund schemes may be a suitable choice for you.

The Nifty 50 Index holds stocks of companies that are leaders in their respective sectors, it is a diversified index with allocation to the top-50 stocks and 13 sectors across the market. If you are willing to gain market-linked returns by investing in high-quality stocks at low cost, then you could consider investing in an exchange-traded fund that tracks the Nifty 50 Index.

DSP Mutual Fund has launched DSP Nifty 50 ETF, which is an open-ended scheme replicating/ tracking the Nifty 50 index. The Nifty 50 Index has been performing well for the past few years and it measures the performance of the top 50 leading Indian companies across the sectors.

Table 1: Details of DSP Nifty-50 ETF

Type An open-ended scheme replicating/ tracking the Nifty 50 index. Category Exchange Traded Fund
Investment Objective The Scheme seeks to provide returns that, before expenses, closely correspond to the total return of the underlying index (NIFTY 50 index), subject to tracking errors. There is no assurance that the investment objective of the Scheme will be realized.
Min. Investment Rs 5,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
Entry Load Not Applicable Exit Load Nil
Fund Manager – Mr Anil Ghelani
– Mr Diipesh Shah
Benchmark Index NIFTY 50 Index (Total Return Index)
Issue Opens: December 06, 2021 Issue Closes: December 17, 2021

(Source: Scheme Information Document

The Investment Strategy for DSP Nifty 50 ETF will be as follows:

DSP Nifty 50 ETF will track the Nifty 50 Index and will use a “passive” or indexing approach to endeavour to achieve the scheme’s investment objective. The scheme will aim to invest in stocks in a similar proportion as the Nifty 50 Index to generate commensurate returns with the performance of the underlying index, subject to tracking error.

The scheme will neither try to beat the index it tracks nor take an active approach in times when markets seem to be over/undervalued. The AMC does not make any judgments about the investment merit of a particular stock or a particular industry segment nor will it attempt to apply any economic, financial or market analysis.

Being an ETF, the scheme will only invest in the security constituting the underlying index. It will aim to ensure that at no point in time the scheme will deviate from the index. The fund manager will endeavour to keep the tracking error as low as possible.

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

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

Table 2: Asset Allocation for DSP Nifty-50 ETF

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity Related Securities of companies constituting the Nifty 50, the Underlying Index 95 100 Medium to High
Cash and Cash Equivalents / Money Market Instruments* with a residual maturity not exceeding 91 days 0 5 Low to Medium

*Money Market Instruments will include TREPS, Commercial Paper, Certificates of Deposit, Treasury Bills, Bills Rediscounting, Repos, short-term Government securities and any other such short-term instruments as may be allowed under the regulations prevailing from time to time.

(Source: Scheme Information Document

About the benchmark

The NIFTY 50 index is a well-diversified index constituting of the top 50 companies and reflecting the overall market conditions. The NIFTY 50 is a diversified 50 stock index and contains exposure in 13 sectors of the economy. The NIFTY 50 Index is computed using the free-float market capitalization method.

Sectoral weights in the Nifty 50 Index get rebalanced periodically based on the changing economic trend in the country.

Who will manage The DSP Nifty 50 ETF?

Mr Anil Ghelani and Mr Diipesh Shah are the fund managers for this scheme.

Mr Anil Ghelani has over 21 years of experience and is currently the Head of Passive Investments & Products at DSP Investment Managers. He is a Chartered Financial Analyst (CFA Institute USA), Chartered Accountant (ICAI India) and B. Com. Graduate (from H. R. College, University of Mumbai). Before joining DSPIM he has worked with IL&FS Asset Management Company as an Asst. Manager – Fund Operations, S. R. Batliboi (member firm of Ernst & Young) during his CA articleship and V. C. Shah & Co., Chartered Accountants.

At DSP Mutual Fund, Mr Ghelani currently manages DSP Quant FundDSP Equal Nifty 50 FundDSP Nifty 50 Index FundDSP Nifty Next 50 Index FundDSP Liquid ETF and DSP Nifty 50 Equal Weight ETF.

Mr Diipesh Shah has over 20 years of experience and he holds a B.Com degree, is an ACA, a candidate of the CFA Program, CFA Institute USA, with Level I cleared. Before joining DSPIM, he was associated with JM Financial Institutional Broking Limited as Institutional Equity Sales Trading, Centrum Boking Limited as Institutional Equity Sales Trading, IDFC Securities Limited as Institutional Equity Sales Trading and Kotak Securities Limited as Institutional Equity Sales Trading.

At DSP Mutual Fund, Mr Shah currently manages DSP Quant FundDSP Equal Nifty 50 FundDSP Nifty 50 Index FundDSP Nifty Next 50 Index FundDSP Liquid ETF and DSP Nifty 50 Equal Weight ETF.

Fund Outlook – DSP Nifty 50 ETF

DSP Nifty 50 ETF aims to invest in companies forming part of the Nifty 50 TRI index representing the top 50 listed Indian companies by market capitalization. The scheme will mirror the performance of the underlying index, subject to tracking error. The fortune of the scheme will be closely linked with the constituents of the Nifty 50 Index.

Due to the recent emergence of the ‘Omicron’ a new variant (of the coronavirus) classified as ‘variant of concern’ and ‘high-risk’ by the WHO; the market may witness intensified volatility which may weigh down on the NIFTY 50 Index and its top constituents. If restrictions and localised lockdowns are once again imposed by the government to curb the spread of infections, it could potentially pull down economic growth and earnings.

Since the lifetime high of the Nifty 50 Index, it has corrected around 6%, however the valuations still look frothy. Backed by gush liquidity, Indian equity markets moved up very quickly and much ahead of the fundamentals. The margin of safety appears to be narrow and the clear direction for the equity market from the current elevated levels is unknown.

Given that the DSP Nifty 50 ETF provides a well-diversified portfolio at a lower cost as compared to actively managed funds and is being launched when the markets have retraced, having the stomach for high risk and an investment time horizon of at least 3 to 5 years is necessary. Do note that equity as an asset class is intrinsically volatile and it goes through testing periods where you as an investor may have to face higher volatility.

This article first appeared on PersonalFN here

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