Passive investing offers ownership of a wide variety of stocks, broad diversification, relatively low risk (than actively manages schemes), and low costs. The encouraging response from investors has led several fund houses to come up with many passive funds tracking different indices.
The Nifty Next 50 Index consists of the top 50 companies which are part of NIFTY100 and after excluding NIFTY50 stocks. The Nifty Next 50 Index invests in nearly blue-chip stocks that may be future market leaders or large caps. Investors who can handle the high risk and are looking for a low-cost, low volatility passive solution for their portfolio may consider investing mutual funds tracking the Nifty Next 50 Index.
Since 2006, Nifty Next 50 has outperformed Nifty 50 TRI, Nifty 100 TRI, and active Large-cap Funds together in 8 out of the last 17 calendar years. However, the index may be more volatile than Nifty50 TRI, and thus it is ideal for investors who could stomach slightly higher risk than large caps and are seeking to invest in high-growth potential stocks as a core part of their equity allocation.
Edelweiss Mutual Fund has launched Edelweiss Nifty Next 50 Index Fund, it is an open-ended equity scheme replicating the Nifty Next 50 Index. Commenting on the launch of this NFO, Ms Radhika Gupta, MD and CEO at Edelweiss AMC, said, “Edelweiss AMC has successfully placed itself amongst the leaders in the passive fund’s category and is today managing the largest portfolio of passive debt funds. The launch of Edelweiss Nifty Next 50 Index Fund further strengthens our product portfolio within our passive fund offerings. With these products, we intend to reach out to a larger investor base and offer best-in-class solutions for the investor needs.”
Table 1: Details of Edelweiss Nifty Next 50 Index Fund
|Type||An open-ended Equity Scheme replicating the Nifty Next 50 Index||Category||Index Fund|
|Investment Objective||The investment objective of the scheme is to provide returns before expenses that closely correspond to the total returns of the Nifty Next 50 Index subject to tracking errors. However, there is no assurance that the investment objective of the scheme will be realised, 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 500/- and in multiples of Re. 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||Nil|
|Fund Manager||Mr Bhavesh Jain||Benchmark Index||Nifty Next 50 Index TRI (Total Return Index)|
|Issue Opens||November 10, 2022||Issue Closes||November 24, 2022|
(Source: Scheme Information Document)
The investment strategy for Edelweiss Nifty Next 50 Index Fund will be as follows:
Edelweiss Nifty Next 50 Index Fund will track the Nifty Next 50 Total Return Index and use a ‘Passive’ or indexing approach to try and achieve the scheme’s investment objective. Thus, the scheme will invest in Nifty Next 50, which is part of NIFTY100 and after excluding NIFTY50 stocks. These are nearly blue-chip stocks (beyond NIFTY50) that can provide better risk-adjusted returns in the medium to long term.
The investment strategy would revolve around reducing the tracking error to the least possible through rebalancing the portfolio, considering the change in weights of stocks in the index as well as the incremental collections/redemptions from the scheme. The scheme will not attempt to beat the markets it tracks and will not seek defensive positions at any point in time, irrespective of the market movements. A passive approach means the scheme will deliver index-linked returns and eliminates risks pertaining to over/underperformance vis-a-vis a benchmark.
The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of these schemes. The scheme shall invest all of its funds as per its investment objective and asset allocation pattern, except to meet its liquidity requirements. The scheme shall also invest up to 5% in Money Market Instruments, Government Securities, bonds, debentures, and cash at call, as per its investment allocation pattern.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for Edelweiss Nifty Next 50 Index Fund
|Instruments||Indicative Allocations (% of Net Assets)||Risk Profile|
|Equity and equity-related securities constituting the Nifty Next 50 Index||95||100||High|
|Debt and Money Market Instruments||0||5||Low to Medium|
(Source: Scheme Information Document)
About the benchmark
The Nifty Next 50 index represents the balance of 50 companies from the Nifty 100 after excluding the Nifty 50 companies. The NIFTY Next 50 is computed using the free-float market capitalisation 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 capitalisation value.
The NIFTY Next 50 has a well-diversified portfolio across sectors with less concentrated exposure to any one sector.
Here’s the top 10 stocks by weightage and sector representation of the Nifty Next 50 Index as on October 31, 2022:
(Source: NSE Nifty Next 50 Index)
# Note that the index will rebalance semi-annually in January and July.
Who will manage Edelweiss Nifty Next 50 Index Fund?
The designated fund manager for this scheme will be Mr Bhavesh Jain. He has completed his Masters in Management Studies (Finance) from Mumbai University and has an overall experience of 14 years in the equity market segment. He has been associated with Edelweiss AMC for over 11 years, formerly as an Equity Dealer and was previously associated with Edelweiss Securities Limited as SGX Nifty Arbitrage Trader.
At Edelweiss Mutual Fund, Mr Jain currently manages Edelweiss Arbitrage Fund, Edelweiss Large Cap Fund, Edelweiss Recently listed IPO Fund, Edelweiss Equity Savings Fund (Equity Portion), Edelweiss Aggressive Hybrid Fund, Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund, Edelweiss Balanced Arbitrage Fund, Edelweiss Nifty 50 Index Fund, Edelweiss ETF – Nifty Bank, Edelweiss Nifty 100 Quality 30 Index Fund, Edelweiss Greater China Equity Off-Shore Fund, Edelweiss Emerging Markets Opportunities Equity Offshore Fund, Edelweiss Asean Equity Offshore Fund, Edelweiss Europe Dynamic Equity Off-Shore Fund, Edelweiss US Value Equity Offshore Fund Edelweiss Gold and Silver ETF Fund of Fund, Edelweiss NIFTY Large Mid Cap 250 Index Fund, and Edelweiss US Technology Equity Fund of Fund.
Fund Outlook – Edelweiss Nifty Next 50 Index Fund
Edelweiss 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 Nifty 50 companies — its fortune will be closely linked to how Nifty Next 50 Index performs. Some companies may eventually graduate and become a part of the Nifty 50 index.
The stocks comprising the underlying index are large-cap companies beyond the Nifty50, which may generate sustainable returns and are potential future leaders. The scheme offers investors exposure to a wide range of businesses across sectors enabling it to weather market ups and downs and maintain the growth potential. Moreover, it is expected to show relatively low volatility since the scheme invests in future large-caps after excluding the Nifty 50 companies.
However, that does not take away the high market risk the scheme is prone to. Additionally, the persistent repercussions of geopolitical tensions, spiralling inflation, and a hike in policy rates to curb demand and control inflation may cause a significant 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 uncertain. These factors, among others, may impact the top constituents of the index, and the portfolio may face intensified volatility in the near term.
Thus, if you are considering investing in Edelweiss Nifty Next 50 Index Fund, ensure you hold a high-risk appetite, a long investment horizon, and an investment objective that aligns with the fund.
This article first appeared on PersonalFN here