Passively managed funds are gaining traction amongst investors. The asset under management (AUM) of the passively managed funds has more than doubled in the past two years from around Rs 1,41,490 crore in December 2019 to Rs 3,06,480 crore in December 2021. This exhibits the investors’ growing confidence in passively managed funds. Looking at the investors’ sentiments towards passively managed funds, several fund houses have come up with many passive funds tracking different indices. Notably, Indian mutual funds launched around 30 passively managed NFOs in CY 2021.

One such index tracked by mutual funds is the Nifty Next 50 Index, which consists of emerging market leaders. The Nifty Next 50 index offers an investor the opportunity to invest in a collection of companies that have the scope to become market titans and provide optimal returns in the long run. Investors who are willing to diversify their portfolio and seek exposure across the sector and market capitalization and invest in potential market leaders may consider investing in mutual funds that track the Nifty Next 50 Index.

Axis Mutual Fund, one of the leading mutual fund houses known for its equity-oriented, debt-oriented, hybrid ETFs, international funds, and solution-oriented schemes, has joined the current momentum of passively-managed schemes and launched Axis Nifty Next 50 Index Fund. It is an open-ended Index Fund tracking the NIFTY Next 50 Index.

On the launch of this fund, Mr Chandresh Nigam, MD and CEO at Axis Mutual Fund said, “The Axis Nifty Next 50 Index Fund comes at a time when investors have understood the importance of passive strategies to leverage the growth of the next generation of leaders while ensuring market benchmark returns. We are confident that this fund will be a notable add-on that will yield long-term wealth creation opportunities for our investors.”

Table 1: Details of Nifty Next 50 Index Fund

Type An Open-Ended Index Fund tracking the NIFTY NEXT 50 Index Category Index Fund
Investment Objective To provide returns before expenses that closely correspond to the total returns of the NIFTY NEXT 50 subject to tracking errors. However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1 thereafter. Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
  • Income Distribution cum Capital Withdrawal (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Jinesh Gopani Benchmark Index Nifty Next 50 Index TRI (Total Return Index)
Issue Opens January 07, 2022 Issue Closes January 21, 2022

(Source: Scheme Information Document

The investment strategy for Axis Nifty Next 50 Index Fund will be as follows:

Axis Nifty Next 50 Index Fund will predominantly invest in stocks comprising the Nifty Next 50 Index and endeavour to track the benchmark index. The scheme will aim to invest in a similar proportion to generate parallel returns with the performance of the underlying index, subject to tracking errors.

The scheme may also invest in debt and money market instruments in compliance with SEBI regulations to meet liquidity and expense requirements. The performance of the scheme may not be exactly commensurate with the performance of the respective benchmark of the scheme on any given day or over any given period. Such minor variation is commonly referred to as tracking error. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index.

Events like the constituent stocks becoming illiquid in the cash market, the exchange changing the constituents, a large dividend going ex but lag in its receipts, etc., tend to increase the tracking error. In such events, it may be more prudent for the scheme to take exposure through derivatives of the index itself or its constituent stocks in order to minimize the long-term tracking error.

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

Table 2: Table 2: Asset Allocation for Axis 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 High
Debt & Money Market Instruments 0 5 Low to Medium

*Investment in Derivatives instruments shall be to the extent of 15% of the Net Assets as permitted by the Regulations.

(Source: Scheme Information Document

About the benchmark

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

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

Here are the top-10 stocks by weightage and sector representation of the Nifty Next 50 Index:

Nifty Auto Index

(Source: Nifty Next 50 Index Fact Sheet as of December 31, 2021)

Note that the index is re-balanced on a semi-annual basis to ensure exposure to new businesses within the respective broad sector.

Who will manage Axis Nifty Next 50 Index Fund?

Mr Jinesh Gopani will be the designated fund manager for this scheme.

Mr Jinesh Gopani has 20 years of experience in the financial services industry. He is a B. Com graduate and Master of Management Studies (Bharati Vidyapeeth Institute of Management Studies and Research, Mumbai). Before joining Axis AMC, he was associated with Birla Sun Life Asset Management Company Ltd. as Portfolio Manager; with Voyager India Capital Pvt. Ltd. as Research Analyst and Portfolio Manager; Emkay Share & Stock Brokers Ltd. as Research Analyst; and Net worth Stock Broking Ltd. as Research Analyst.

At Axis AMC, Mr Gopani currently manages Axis Focused 25 Fund (along with Mr. Hitesh Das), Axis Long Term Equity FundAxis Growth Opportunities Fund (along with Hitesh Das – for foreign securities), Axis Retirement Savings Fund including Aggressive Plan, Dynamic Plan and Conservative Plan (along with Mr. R. Sivakumar), Axis ESG Equity Fund (along with Mr. Hitesh Das), and Axis Value Fund [along with Mr. Deepak Agrawal and Mr. Hitesh Das (for foreign securities)]

Fund Outlook – Axis Nifty Next 50 Index Fund

Axis Nifty Next 50 Index Fund will aim to mirror the performance of the Nifty Next 50 Index, subject to tracking errors. The underlying index is composed of the next 50 largest companies by market capitalisation from the Nifty 100 universe, after excluding the Nifty 50 companies.

The underlying index has a decent performance track record and provides a diversified portfolio of stocks across sectors and market capitalization. Considering the current circumstances, several companies have remodelled themselves to overcome the uncertainties caused amid the pandemic and showcased growth capabilities with strong funding, new business models, etc.

This scheme offers investors an opportunity to invest in companies that have the potential to become next-generation market leaders and are potential candidates for inclusion into the Nifty50 index. The fortune of this scheme will be closely linked to the performance of the Nifty Next 50 Index.

However, do note that the scheme will be prone to high market risk, as the looming threat of the Delta plus the Omicron variant that has led to the rapid rise of COVID-19 cases in India and many parts of the world pose a major risk to sustainable economic growth. The direction of the Indian equity markets from the current elevated levels is uncertain. These factors, among many others, may weigh down the Nifty Next 50 Index and could have a bearing on the scheme’s performance.

Thus, this scheme is suitable for investors with a high-risk appetite, having a preference for a passively managed fund with a long investment horizon to survive the various market phases. However, you must ensure that your investment objective is aligned with the merits offered by the fund.

This article first appeared on PersonalFN here

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