Large-cap index funds have become popular among mutual funds investors in the past few years. The NIFTY 100 Index is a basket of India’s top 100 large-cap companies, in full market capitalization. It is considered as a combination of investing in NIFTY 50 and NIFTY Next 50 simultaneously.

The Nifty 100 Index comprising the top 100 well-established and known businesses, is an ideal stepping stone to the world of equity investing. The Nifty 100 index can be considered the more efficient way to gain exposure to the Large Cap universe in Indian equities.

Investors often find it difficult to gauge which Index or combination of Indices will perform better in the future. Investors looking to complement their portfolios of distinct themes with a large-cap strategy aligned with the market movement may consider investing in Index funds tracking the Nifty 100 Index.

IDFC Mutual Fund has launched IDFC Nifty 100 Index Fund. It is an open-ended scheme tracking the Nifty 100 Index. The scheme has the potential to meet every investor segment’s portfolio requirement, which includes:

– First-time investor in the world of equity;

– Informed investors that understand the potential of equity investing but may have limited time and expertise in filtering funds and stocks from the large-cap universe;

– The evolved investors with multiple funds and strategies in the portfolio;

– An investor in the retirement phase.

On the launch of IDFC NIFTY 100 Index Fund, Mr Vishal Kapoor, Chief Executive Officer (CEO) at IDFC AMC, said, “IDFC Nifty 100 Index Fund is an efficient way to gain exposure to the Indian Equity Large Cap universe. Investors can benefit from a relatively stable portfolio of the top 100 well-established businesses as included in the Nifty 100 Index.

The fund facilitates diversification across various sectors, would be available at a relatively lower cost compared with diversified equity funds, and enables disciplined investing through a systematic investment plan (SIP), which could help generate long-term capital appreciation. Also, this passive fund is well-positioned to meet the investment needs of different investor segments such as beginners, informed, experienced and retiree.”

Table 1: Details of IDFC Nifty 100 Index Fund

Type An open-ended scheme tracking the Nifty 100 Index. Category Index Fund
Investment Objective The investment objective of the Scheme is to replicate the Nifty 100 index by investing in securities of the Nifty 100 Index in the same proportion / weightage with an aim to provide returns before expenses that closely correspond to the total return of the Nifty 100 Index, subject to tracking errors. However, there is no assurance or guarantee that the objectives of the scheme will be realized, and the scheme does not assure or guarantee any returns.
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
SIP/SWP/STP Available
  • Direct
  • Regular
  • Growth
  • Income Distribution cum Capital Withdrawal Option (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr. Nemish Sheth Benchmark Index Nifty 100 TRI (Total Return Index)
Issue Opens February 07, 2022 Issue Closes February 18, 2022

(Source: Scheme Information Document)  

The investment strategy for IDFC Nifty 100 Index Fund will be as follows:

IDFC Nifty 100 Index will be managed passively with investments in stocks in proportion to the weights of these stocks in the Nifty 100 Index. The scheme endeavours to achieve a return equivalent to the Nifty 100 Index by investing in stocks of companies comprising the Nifty 100 Index.

The Nifty 100 index consists of the 100 largest companies by market capitalization, reflecting overall market conditions. The underlying can provide diversification across various stocks/sectors.

The scheme’s performance may not be 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 investment strategy would revolve around reducing the tracking error to the least possible through portfolio rebalancing, considering the change in weights of stocks in the index and the incremental collections/redemptions from the scheme.

A small portion of the net assets will be held as cash or will be 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 of the scheme will be as under:

Table 2: Asset Allocation for IDFC Nifty 100 Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Securities belonging to the Nifty 100 Index 95 100 High
Debt & Money Market Instruments 0 5 Low to Medium

(Source: Scheme Information Document)

About the benchmark

NIFTY 100 is a diversified index of 100 stocks representing the major sectors of the economy. It represents the top 100 companies based on full market capitalisation from the NIFTY 500 index. This index intends to measure the performance of large market capitalisation companies. The NIFTY 100 index tracks the behaviour of a combined portfolio of two indices, viz. NIFTY 50 and NIFTY Next 50.

NIFTY 100 is computed using the free-float market capitalization method. 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.

Here’s the list of top 10 constituents by weightage and sector representation under the index as on January 31, 2022:

(Source: Nifty 100 Index Factsheet as of January 31, 2022)  

Note that the index does a rebalancing on a semi-annual basis in June and December every year.

Who will manage IDFC Nifty 100 Index Fund?

The designated fund manager for this scheme is Mr Nemish Sheth. He is a B. Com graduate and holds a Post Graduate Diploma in Management studies – Finance with an overall experience of 12 years in the financial services industry. Prior to joining IDFC Mutual Fund, he was associated with Nippon Life India Asset Management Ltd. and before that with ICICI Prudential Asset Management Company Ltd. working as Dealer and handling execution of Equity, Arbitrage, and ETF trades in both these organisations.

At IDFC AMC, Mr Sheth currently manages IDFC Arbitrage Fund – Equity portion, IDFC Equity Savings Fund – Equity portion, IDFC Sensex ETF and IDFC Nifty ETF.

Fund Outlook – IDFC Nifty 100 Index Fund

IDFC Nifty 100 Index Fund aims to mirror the performance of the Nifty 100 Index. The underlying index is composed of the 100 largest companies by market capitalisation. The fortune of this scheme will be closely linked to how the Nifty 100 Index performs.

The underlying index is well-diversified across major sectors like financial services, information technology, oil & gas, and consumer goods. The scheme offers investors an opportunity to participate in India’s largest companies under one roof i.e., the Nifty 100 Index. The underlying index provides a complete representation of the Indian Large Cap universe; large caps can provide relatively more predictable returns vs. mid and small caps.

Over the long term, equities have the potential to beat inflation. Hence, this scheme, with a relatively stable equity allocation via a large cap index can be beneficial to maintain stability in an investor’s portfolio. It offers an opportunity to invest in large-cap space at a low cost. Being an Index fund, it will follow a passive investing approach, and it reduces the risk of stock selection by the fund manager.

However, that does not take away the high market risk due to the threat of the Omicron variant and the US Federal Reserve’s announcement of a reduction in stimulus. In addition, the monetary policy action and stance amidst the inflationary pressures taken by the RBI may pose a risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These, among many other factors, may affect the scheme’s performance, and the portfolio may face intensified volatility in the near term.

Thus, if you consider investing in IDFC Nifty 100 Index Fund, ensure you hold a high-risk appetite, a long investment horizon to sustain market volatility, and an investment objective that aligns with the fund.

This article first appeared on PersonalFN here

Leave a Reply

Your email address will not be published. Required fields are marked *