As India attempts to speed up the growth of its GDP (Gross Domestic Product), the financial services sector is perhaps one of the key growth drivers. Along with banks, other industries like NBFCs, insurance, capital markets, etc., are included in financial services. It is a fairly diversified industry that is rapidly growing as a result of digitisation and the introduction of new products and services. Low market penetration across segments provides more room for growth.
Financial Services are required at every stage of life, be it in the early income stage or retirement phase of an individual. The Financial Services sector is the backbone of the Indian economy, from offline to online, cash to UPI, FDs to MFs, and financial services have consistently innovated and advanced significantly throughout the years. All types of financial services, from banks to NBFCs, and insurance to AMCs, are projected to have strong growth over time. This financial services sector is projected to have an even stronger tendency for development with high growth, emerging categories like Fintech and Digital lending.
Given that, investors are seeking to purchase stocks of companies operating in the financial services industry in an effort to profit from the sector’s expansion. However, investors could consider investing in the Nifty Financial Services Index, which tracks the performance of various financial services providers and enables you to gain from the sector’s wide range of diversification beyond banks.
Looking at the investor sentiment, Aditya Birla Sun Life Mutual Fund has launched Aditya Birla Sun Life Nifty Financial Services ETF. It is an open-ended exchange-traded fund tracking Nifty Financial Services TRI.
On the launch of this fund, Mr A. Balasubramanian, MD & CEO at Aditya Birla Sun Life Mutual Fund, said, “Given the recent volatility, many investors are now resorting to passive products that will provide them with the option to take underlying index exposure in various segments of the market at low costs. This ETF presents a unique investment opportunity in light of the significance of the BFSI sector.”
Table 1: Details of Aditya Birla Sun Life Nifty Financial Services ETF
| Type | An open ended exchange traded fund tracking Nifty Financial Services TRI | Category | Exchange Traded Fund |
| Investment Objective | The investment objective of the scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the Nifty Financial Services TRI, subject to tracking errors. However, the performance of the scheme may differ from that of the underlying index due to tracking errors. The Scheme does not guarantee/indicate any returns. There can be no assurance that the schemes' objectives will be achieved. |
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| Min. Investment | Rs 500/- and in multiples of Rs 100/- thereafter. | Face Value | Rs 10/- per unit |
| Entry Load | Not Applicable | Exit Load | Nil |
| Fund Manager | Mr Lovelish Solanki | Benchmark Index | Nifty Financial Services TRI |
| Issue Opens: | July 14, 2022 | Issue Closes: | July 27, 2022 |
(Source: Scheme Information Document)
The investment strategy for Aditya Birla Sun Life Nifty Financial Services ETF will be as follows:
Aditya Birla Sun Life Nifty Financial Services ETF will be managed passively with investments in stocks in proportion to the weightage of these stocks in the Nifty Financial Services TRI.
The investment strategy would revolve around reducing the tracking error to the least possible through regular rebalancing of the portfolio, taking into account the change in weights of stocks in the index as well as the incremental collections/redemptions in the Scheme. Since the Scheme is an exchange-traded fund, the Scheme will only invest in the securities constituting the underlying index. However, due to corporate action in companies comprising of the index, the scheme may be allocated/allotted securities which are not part of the index.
Rebalancing of the scheme shall also be carried out whenever there is a change in the underlying index or any change due to corporate action with respect to the constituents of the underlying index within 7 calendar days. The Scheme may also invest in debt/money market instruments in compliance with Regulations to meet liquidity and expense requirements.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Aditya Birla Sun Life Nifty Financial Services ETF
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Equity & Equity related instruments constituting Nifty Financial Services TRI | 95 | 100 | Medium to High |
| Cash, Money Market & Debt instruments | 0 | 5 | Low |
(Source: Scheme Information Document)
About the benchmark
The Nifty Financial Services TRI is designed to reflect the behaviour and performance of the Indian financial markets, which includes banks, financial institutions, housing finance, insurance companies and other financial services companies. It offers various exposure to sub sector’s within the financial sector, which has gained increased prominence.
The index comprises of 20 stocks that are listed on the national stock exchange (NSE). The final selection of 20 companies shall be made based on the free float market capitalisation after considering the adequate representation of each segment.
Here’s the list of top 10 constituents by weightage under the index as of June 30, 2022:
(Source: NSE Nifty Financial Services Index)
Note that the index rebalancing is undertaken semi-annually.
Who will manage Aditya Birla Sun Life Nifty Financial Services ETF?
Mr Lovelish Solanki and Mr Pranav Gupta will be the designated fund managers for this scheme.
Mr Lovelish Solanki holds MMS (Finance) and BMS (Finance) degrees. He has an overall experience of over 10 years in Trading and Dealing. Prior to this, he was associated with Union KBC Asset Management Co. Limited as Equity/Equity Derivatives – Trader and Edelweiss Asset Management Co. Ltd.
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 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, Aditya Birla Sun Life Nifty IT ETF, Aditya Birla Sun Life Silver ETF Fund of Fund, and Aditya Birla Sun Life Nifty Next 50 Index Fund.
Mr Pranav Gupta completed his Master in Management Studies- Finance from N.L Dalmia Institute of Management Studies and Research. He has over 4 years of experience in the capital market across segments such as derivative sales trading and Alternative Research. Prior to joining Aditya Birla Sun Life AMC Limited, he was part of the Alternate Research and Strategy department at Centrum Broking Limited and has also worked with OHM Stock Broker Pvt. Ltd.
At ABSL AMC, Mr Gupta currently manages Aditya Birla Sun Life Nifty 50 Index Fund, 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, Aditya Birla Sun Life Nifty IT ETF, Aditya Birla Sun Life Silver ETF Fund of Fund, and Aditya Birla Sun Life Nifty Next 50 Index Fund.
Fund Outlook – Aditya Birla Sun Life Nifty Financial Services ETF
Aditya Birla Sun Life Nifty Financial Services ETF aims to provide returns that closely correspond to the total returns as represented by the Nifty Financial Services Index, subject to tracking errors.
The Nifty Financial Services Index is a well-diversified portfolio that covers insurance, wealth management, stock broking, payment systems, and other financial services in addition to traditional banking. The scheme seeks to make investments in reputable financial institutions. It provides exposure to large-cap equities with high liquidity and diversification on increasing weightage for non-banking sectors, which leads to the potential for long-term capital appreciation.
Nifty Financial Services Index has exhibited a better return to risk profile along with lower drawdown vis-a-vis Nifty Bank Index. This new ETF will help investors capture the growth opportunity across the diversified spectrum of financial services.
However, this scheme is a sector-oriented ETF that will aim to invest only in the financial services sector, which creates a concentration risk due to limited exposure. Additionally, the persistent repercussions of the Russia-Ukraine conflict, rising interest rates, and spiralling inflation are all issues that represent a significant risk to economic growth. They are the root cause of the prevailing high market volatility.
These factors, among many others, could have a bearing on the scheme’s performance and may affect negatively if the sector moves out of favour. The fortune of this scheme will depend on the performance of the underlying Nifty Financial Services Index. Thus, being a sectoral ETF, this scheme is a high-risk, high-return investment proposition and suitable only for high-risk investors with at least 5-7 years of the investment horizon.
This article first appeared on PersonalFN here
