The concept of passive investing is gaining traction, particularly in the large-cap space. Post pandemic, the focus on large caps is only increasing amidst lofty valuations. Large caps have more stable business models with a focus on good corporate governance, and they provide more liquidity in tumultuous market conditions.
Many fund houses have come up with several passive funds (ETFs/Index funds) tracking the performance of different indices that have generated optimal returns. Investing in Index funds that track the performance of the Nifty 50 or Nifty Next 50 Index is one of the best ways to gain exposure to the large-cap space.
The NIFTY Next 50 has a well-diversified portfolio consisting of stocks across sectors with less concentrated exposure to any one sector. Over the last 19 years, the majority of inclusion of companies in the NIFTY 50 Index are from NIFTY Next 50 Index. Looking at the current market conditions where volatility has intensified, it is prudent to invest in large-cap and potential large-cap segments to generate meaningful risk-adjusted returns.
Aditya Birla Sun Life Mutual Fund has launched Aditya Birla Sun Life Nifty Next 50 Index Fund, an open-ended scheme tracking the Nifty Next 50 Index.
On the launch of this fund, Mr. A. Balasubramanian, MD & CEO at Aditya Birla Sun Life AMC, said, “Large caps offer stability, liquidity, better price discovery, and high corporate governance. Especially during volatile times, large caps are a must-have in an investor’s portfolio. And with a predominantly large-cap exposure, lower concentration, and better sub-sectoral representation, Nifty Next 50 Index Fund provides investors with an ideal way to invest in the potential future blue chips.
The Nifty Next 50 Index has consistently given better 3-year rolling returns than the Nifty 50 Index. From 2002 till date, the Nifty Next 50 Index has given a CAGR of 21.8% p.a., significantly higher than the Nifty 50 Index’s CAGR of 18.2% p.a. in the same period. Aditya Birla Sun Life Nifty Next 50 Index Fund thus offers investors an opportunity to enjoy better risk-adjusted returns at a low cost.”
Table 1: Details of Aditya Birla Sun Life Nifty Next 50 Index Fund
| Type | An open-ended scheme tracking the Nifty Next 50 Index. | Category | Index Fund |
| Investment Objective | The investment objective of the Scheme is to provide returns that closely track the total returns of securities as represented by Nifty Next 50 Index, subject to tracking errors. The Scheme does not guarantee/indicate any returns. There can be no assurance that the objective of the Scheme will be achieved. | ||
| Min. Investment | Rs 100 and in multiples of Re 1/- thereafter. Additional Purchase Rs 100/- and in multiples of Re. 1 thereafter. | Face Value | Rs 10/- per unit |
| Plans |
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Options |
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| Entry Load | Not Applicable | Exit Load |
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| Fund Manager |
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Benchmark Index | Nifty Next 50 TRI (Total Return Index) |
| Issue Opens | January 31, 2022 | Issue Closes | February 14, 2022 |
(Source: Scheme Information Document)
The investment strategy for Aditya Birla Sun Life Nifty Next 50 Index Fund will be as follows:
Aditya Birla Sun Life Nifty Next 50 Index Fund will follow a passive investment strategy and invest not less than 95% of its corpus in stocks comprising the Nifty Next 50 Index and endeavour to track the benchmark index while minimizing the tracking error.
The underlying index holds nearly blue-chip stocks (beyond NIFTY50) that can provide better risk-adjusted returns in the medium to long term. The performance of the scheme may not commensurate with the performance of the respective benchmark of the scheme on any given day or over any given period. Such 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. The fund house does not make any judgments about the investment merit of Nifty Next 50 TRI nor will it attempt to apply any economic, financial, or market analysis.
A small portion of the net assets will be held as cash and/or will be invested in debt and money market instruments permitted by SEBI/RBI, including TREPS, or in 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 Aditya Birla Sun Life Nifty Next 50 Index Fund
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Equity & Equity related instruments constituting the Nifty Next 50 Index* | 95 | 100 | Moderate |
| Debt & Money Market Instruments | 0 | 5 | Low |
*Investment in Derivatives instruments shall be to the extent of 15% of the Net Assets as permitted by the Regulations. Such exposure to equity derivatives of constituents of the underlying Index would be taken for short duration when securities of the Index are unavailable, insufficient, for rebalancing at the time of change in the constituents of Index or in case of corporate actions. In case of deviation of the above limit, the fund manager shall endeavour to rebalance the portfolio within 7 business days or follow processes specified w.r.t rebalancing.
(Source: Scheme Information Document)
About the benchmark
The Nifty Next 50 index represents the balance 50 companies from Nifty 100 after excluding the Nifty 50 companies. The NIFTY Next 50 is computed using the free-float market capitalization method, wherein the level of the index 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 one sector.
Here are the top-10 stocks by weightage and sector representation of the Nifty Next 50 Index:
(Source: Nifty Next 50 Index Fact Sheet as of December 31, 2021)
Who will manage Aditya Birla Sun Life Nifty Next 50 Index Fund?
Mr. Lovelish Solanki & Mr. Kedarnath Mirajkar will be the designated Fund Managers of the scheme.
Mr. Lovelish Solanki holds MMS (Finance) and BMS (Finance) degree and has an overall experience of over 10 years in Trading and Dealing. Before joining Aditya Birla Sun Life AMC Limited, he was Equity /Equity Derivatives – Trader at Union KBC Asset Management Co Limited since February 2011. Before that, he worked at Edelweiss Asset Management Co. Ltd since January 2008.
At ABSL AMC, Mr. Solanki currently manages Aditya Birla Sun Life Index Fund, Aditya Birla Sun Life Arbitrage Fund, Aditya Birla Sun Life Gold ETF, Aditya Birla Sun Life Nifty ETF, Aditya Birla Sun Life Gold Fund, Aditya Birla Sun Life Balanced Advantage Fund, Aditya Birla Sun Life Equity Savings Fund, Aditya Birla Sun Life Sensex ETF, Aditya Birla Sun Life Nifty Next 50 ETF, Aditya Birla Sun Life Banking ETF, Aditya Birla Sun Life Nifty Small cap 50 Index Fund, Aditya Birla Sun Life Nifty Midcap 150 Index Fund, Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund, Aditya Birla Sun Life Nifty Healthcare ETF, and Aditya Birla Sun Life Nifty IT ETF.
Mr. Kedarnath Mirajkar will be managing the Exchange Traded Commodity Derivatives (ETCDs) portion of the scheme. He has a Post Graduate Diploma in Business Management – Finance and an overall work experience of over 14 years. He is associated with ABSL AMC since April 2010 and has worked in Operations and Risk functions. He was responsible for trade settlement, valuation of securities, and monitoring of regulatory limits.
At ABSL AMC, Mr. Mirajkar currently manages Aditya Birla Sun Life Index Fund, Aditya Birla Sun Life Gold ETF, Aditya Birla Sun Life Nifty ETF, Aditya Birla Sun Life Sensex ETF, Aditya Birla Sun Life Nifty Next 50 ETF, Aditya Birla Sun Life Banking ETF, Aditya Birla Sun Life Nifty Smallcap 50 Index Fund, Aditya Birla Sun Life Nifty Midcap 150 Index Fund, Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund, Aditya Birla Sun Life Nifty Healthcare ETF, and Aditya Birla Sun Life Nifty IT ETF.
Fund Outlook – Aditya Birla Sun Life Nifty Next 50 Index Fund
The Aditya Birla Sun Life Nifty Next 50 Index Fund will aim to mirror the performance of the Nifty Next 50 Index and the underlying index is composed of the next 50 largest companies by market capitalisation after the companies listed on the Nifty 50 index. The fortune of this scheme will be closely linked to how the Nifty Next 50 Index performs.
The underlying index consists of blue-chip large caps representing existing sectoral leaders with high corporate governance, liquidity, and stability. It includes high growth midcap stocks that are considered as potential future blue chips, relatively well-established companies, and familiar brands with growth potential.
The Nifty 50 has a high concentration towards its top sectors (Financial Services + IT ~ 55%), whereas the Nifty Next 50 Index is much more balanced across sectors. It offers higher exposure to sunrise & growth sectors like Consumer, Healthcare, and Commodities. The scheme offers its investors’ portfolios healthy diversification as the Aditya Birla Sun Life Nifty Next 50 Index Fund invests across sectors.
Being an Index fund, it reduces the risk of stock selection by the fund manager. All that fund managers have to do with this fund is simply replicate the constituents of the index in almost the same weights.
Although this scheme provides exposure in large-cap equity at reasonable costs, the opportunity for high growth & capital appreciation, it is still prone to high market risks. Therefore, the riskometer signals a very high risk. Currently, the looming threat of the Omicron variant (the fact that the virus is mutating), high inflation, the US Federal Reserve’s announcement of tightening the monetary policy, rise in bond yields, and escalating geopolitical tensions, are some of the factors that pose a major risk to economic growth and equity markets. The margin of safety appears to be narrow at these elevated levels of the equity market and going forward volatility is likely to intensify.
These factors among many others could have a bearing on the scheme’s performance. Therefore, if you are considering investing in Aditya Birla Sun Life Nifty Next 50 Index Fund, ensure you hold a high-risk appetite, a long investment horizon (at least 3 to 5 years), and your investment objective aligns with that of the fund.
This article first appeared on PersonalFN here
