Publish Date:
After the remarkable performance of the Nifty Bank Index over the last couple of years, Bandhan Mutual Fund (erstwhile known as IDFC Mutual Fund) has now introduced, Bandhan Nifty Bank Index Fund. During the New Fund Offer (NFO) period, the scheme is open for subscription from August 8, 2024, to August 22, 2024.
It is an open-ended equity scheme replicating/tracking the Nifty Bank Index. In other words, the Scheme will benchmark its performance against the Nifty Bank Index (Total Return Index).
Around 95%-100% of its total assets will be invested in equity and equity-related securities belonging to the Nifty Bank Index, including stocks and index derivatives. The exposure to derivatives shall be up to 20% of the equity exposure, and this may be undertaken when equity shares of the underlying index are unavailable or not available in sufficient quantities, subject to the rebalancing period.
Up to 5% of the Scheme’s assets will also be invested in debt & money market instruments, including mutual funds, as permitted by SEBI/RBI to meet the liquidity requirements and for meeting margin money requirement for Nifty Bank Index futures and/or futures of stocks belonging to the Nifty Bank Index.
The cash & cash equivalents shall consist of securities having less than 91 days, such as T-Bills, government securities, and repo on government securities.
However, categorically the Scheme will not invest in Credit Default Swaps (CDS), debt instruments having structured obligations, credit enhancements, debt instruments with special features (AT1 Bonds and AT2 Bonds), securitised debt instruments, repo in corporate debt, debt derivatives, commodity derivative, REIT & InVIT instruments, and overseas securities.
Subject to the SEBI (MF) Regulations and in accordance with para 12.11 of the SEBI master circular, as may be amended from time to time, the Scheme may engage in stock lending. Not more than 20% of the net assets of the Scheme can generally be deployed in stock lending. Also, not more than 5% of the net assets of the Scheme can generally be deployed in stock lending to any single counterparty.
What is the Investment Objective?
The investment objective of Bandhan Nifty Bank Index Fund is to replicate the Nifty Bank Index by investing in securities of the Nifty Bank Index in the same proportion/weightage with an aim to provide returns before expenses that track the total return of the Nifty Bank Index, subject to tracking errors.
However, there is no assurance or guarantee that the objectives of the scheme will be realised and the scheme does not assure or guarantee any returns.
What is the Investment Strategy?
The corpus of the Scheme, which will be passively managed, will be invested primarily in stocks constituting the respective benchmark of the Scheme i.e. Nifty Bank Index.
The stocks comprising the Nifty Bank Index are periodically reviewed by NSE Indices. A particular stock may be dropped, or new securities may be included as a constituent of the index.
In such an event, the Scheme will endeavour to reallocate its portfolio, but the available investment/ disinvestment opportunities may not permit precise mirroring of the index immediately.
Similarly, in the event of a constituent stock being demerged/merged/delisted from the exchange, the Scheme will reallocate the portfolio and seek to minimize the variation from the index.
Also, as mentioned earlier, the Scheme may take exposure to equity derivatives of constituents of the underlying index when securities of the Index are unavailable, insufficient or for rebalancing at the time of change in the index or in case of corporate actions, for a short period of time. The total exposure to derivatives would be restricted to 20% of the equity exposure of the Scheme.
A portion of the Scheme will be also kept liquid to meet the redemption requirements in line with SEBI Regulations.
Hence, the Scheme may not be commensurate with the performance of the respective benchmark of the Schemes on any given day or over any given period. This variation is due to what is commonly referred to as the tracking error.
The Bandhan Nifty Bank Index Fund intends to maintain a low tracking error by managing the portfolio in line with the index.
The Scheme will benchmark its performance against the Nifty Bank Index (Total Return Index).
About the Nifty Bank Index
The Nifty Bank Index comprises the most liquid and large-capitalised Indian Banking stocks. Currently, this index comprises 12 companies listed on the National Stock Exchange (NSE).
It provides investors and market intermediaries with a benchmark that captures the capital market performance of Indian Banks.
The Nifty Bank Index is computed using the free-float market capitalisation method.
Table: Top Constituents of the Nifty Bank Index
(Source: NSE Indexogram Factsheet as of July 31, 2024)
In the last decade, the Nifty Bank Index reveals has created wealth at a remarkable pace. Even during the COVID-19 pandemic, the index did retrace sharply, the bounce back was also sharper and more impactful.
Graph: Long-Term Performance of the Nifty Bank Index
(Source: NSE Indexogram Factsheet as of July 31, 2024)
Over the last 5 years, the compounded annualised price return of the Nifty Bank Index is 12.2%, while the total returns (which accounts for dividends) is 12.9% CAGR (as of July 31, 2024).
Here’s what Mr Vishal Kapoor, the CEO of Bandha Asset Management Company (AMC), said about the fund launch:
“As India’s GDP climbs, so does the demand for credit and broader financial services, setting the stage for banks to flourish. Our banks, once burdened by high NPAs and low profitability, have transformed remarkably. They now stand well-capitalised and likely to witness increased profitability, poised to fuel the country’s growth. The Bandhan Nifty Bank Index Fund offers investors a very simple and relatively cost-efficient way to invest in this sector. Investors looking to enhance their portfolios with the banking sector’s growth potential can consider this fund.”
Who Will Manage Bandhan Nifty Bank Index Fund?
Mr Nemish Sheth is the fund manager of the Scheme. He is an Associate Vice President - Equity at Bandhan AMC. Nemish joined the equity fund management team of Bandhan AMC in November 2021, as was earlier associated with Nippon Life India Asset Management Ltd. as a dealer handling execution of equity, arbitrage and ETF trades.
Before that, he was also associated with ICICI Prudential Asset Management Company Ltd. as a dealer from August 2011 to December 2018 handling execution of Equity, Arbitrage and ETF trades.
Nemish has a total work experience of 12 years and manages various other Index Funds and equity-oriented ETFs at Bandhan Mutual Fund. He is a commerce graduate (B.Com) and holds a post-graduate diploma in management studies with a specialisation in finance (PGDM – Finance).
How much is the Minimum Investment in Bandhan Nifty Bank Index Fund?
During the NFO period, i.e. from August 8, 2024, to August 22, 2024, the minimum lump sum investment in the Scheme is Rs 1,000/- and in multiples of Re 1/- thereafter.
In the case of SIPs during the NFO period, the minimum instalment is Rs 100/- and in multiple of Re 1/- thereafter (minimum 6 instalments).
In case you are considering STP, the minimum amount for transfer instalments is Rs. 500/- and any amount thereafter.
Both, the Direct Plan and Regular Plan for available for investments.
After the NFO period, the scheme will re-open for subscription on August 28, 2024.
Who Should Consider Investing in Bandhan Nifty Bank Index Fund?
The fortune of the Scheme will be closely linked to the performance of the Nifty Bank Index. Given the focus on one sector, i.e. banks in this case, as an investor, you will be exposed to concentration risk.
Currently, the P/E of the Nifty Bank Index is ~15x and PB ~3x, both below the 10-year average. So, the NFO is opportunely is introduced. As our economy continues to accelerate, banks are likely to achieve increased profitability. At present, banks are well-capitalised with lower NPAs and record profitability, positioning them to fuel India’s economic growth.
That being said, given the concentration risk to one sector, the Bandhan Nifty Bank Index Fund is suitable for investors having a very high-risk appetite and an investment horizon of around 5-7 years or so.
To know more about the Bandhan Nifty Bank Index Fund read the Scheme Information Document and Key Information Memorandum.
Happy Investing!