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Over the last few months, Baroda BNP Paribas Mutual Fund has been adding a variety of mutual funds, particularly equity-oriented ones, to build its product basket. It appears that the fund house has been capitalising on the upbeat investor sentiments towards equities.
Lately, the fund house has come up with a New Fund Offer (NFO), the Baroda BNP Nifty Midcap 150 Index Fund. During the NFO period, the scheme is open for subscription from October 14, 2025, to October 28, 2024. Thereafter the Scheme will re-open for subscription within 5 days from the date of allotment.
An open-ended Scheme replicating/tracking the Nifty Midcap 150 Total Return Index. In other words, the returns of the scheme would closely commensurate with that of the Nifty Midcap 150 Total Return Index, subject to a tracking error.
Under normal circumstances, around 95%-100% of its total assets will be invested in equity and equity-related securities of companies constituting the Nifty Midcap 150 Total Return Index.
The Scheme may also take exposure to derivative instruments on the underlying index (stock/ index futures) up to 20% of the net assets.
The Scheme may also engage in stock lending activities up to 20% of its net assets and not more than 5% of the net assets can be deployed in Stock Lending to any single intermediary.
Under normal circumstances, up to 5% of the net assets of the Scheme would also be money market Instruments, units of Liquid Scheme, and cash & cash equivalents etc. This is mainly for liquidity purposes and to meet redemptions.
Note, that money market instruments include Treasury bills (T-bills) and Government securities (G-secs) having a residual maturity of up to one year, Tri-Party Repos, Repo in government securities and treasury bills and any other like instruments as specified by the Reserve Bank of India from time to time.
For the pending deployment of funds of the Scheme in securities in terms of the investment objective of the Scheme, the fund house may invest the funds of the Scheme in short-term deposits of scheduled commercial banks subject to restrictions laid down under the SEBI Regulations from time to time.
The Scheme will not invest in the following:
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Foreign securities
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Reverse repurchase agreements in corporate debt securities
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Credit Default Swaps (CDS) for Corporate Bonds
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Interest Rate Swaps (IRS) & Interest rate Futures
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Structured Obligation (SO) and Credit Enhancement (CE)
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Securitised debt
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Investment in debt instruments with special features (viz. AT1 and AT2 bonds)
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REITs & InVITs
Further, the Scheme shall not indulge in short selling.
What is the Investment Objective?
The investment objective of Baroda BNP Nifty Midcap 150 Index Fund is to provide investment returns closely corresponding to the total returns of the securities as represented by the Nifty Midcap 150 Total Returns Index before expenses, subject to tracking errors, fees, and expenses.
However, there is no assurance that the investment objective of the Scheme will be achieved.
What is the Investment Strategy?
To achieve its investment objective, the Baroda BNP Nifty Midcap 150 Index Fund will be passively managed employing an investment strategy that seeks to track/replicate the performance of the underlying index, subject to tracking error. The Scheme seeks to achieve this goal by investing in the securities constituting the Nifty Midcap 150 Total Returns Index in the same proportion as in the Index.
The Scheme, as mentioned earlier, may also take exposure to derivative instruments on the underlying index (stock/ index futures) up to 20% of its net assets. Derivatives shall mean derivatives instruments as permitted by SEBI, including derivative exposure in accordance with SEBI guidelines.
The Scheme may take exposure to equity derivatives of constituents of the underlying basket (of its index) when securities of the basket are unavailable, insufficient or for rebalancing at the time of change in the basket or in case of corporate actions, for a short period of time, subject to derivative limits. Such exposure to derivatives will be rebalanced within seven calendar days.
The Scheme may use derivative instruments such as stock futures and options contracts or any other derivative instruments that are permissible or may be permissible in future under applicable regulations and such investments shall be in accordance with the investment objective of the Scheme. However, the derivative limit is subject to a limit of 20% of net assets.
As regards, the risk control strategies, Baroda AMC has the necessary framework in place for risk mitigation at an enterprise level. The Risk Management division is an independent division within the organisation.
The Scheme will benchmark its performance against the Nifty Midcap 150 Total Return Index. The portfolio of the Scheme would endeavour to replicate/track the index.
About the Nifty Midcap 150 Index
The Nifty Midcap 150 Index (launched on April 1, 2016, with a base date of April 1, 2005) represents the next 150 companies (companies ranked 101-250) based on full market capitalisation from the Nifty 500.
The Nifty Midcap 150 Index 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 capitalisation value.
The Nifty Midcap 150 Index has representation across sectors, with currently financial services having the highest weight of 19.2% and Media, Entertainment & Publication 0.20%, the least.
Image: Sector Representation of the Nifty Midcap 150 Index
Data as of October 16, 2024
(Source: www.niftyindices.com)
At present, the top 10 constituents of the Nifty Midcap 150 Index include names, such as the following:
Table: Top Constituents of the Nifty Midcap 50 Index
(Source: NSE Indexogram Factsheet as of September 30, 2024)
Since the base date of April 1, 2005, the Nifty Midcap 150 Index has clocked a price return of 17.2% CAGR and a total return (which includes dividends) of 18.7% (as of September 30, 2024).
Graph: Long-term Performance of Nifty Midcap 50 Index
(Source: NSE Indexogram Factsheet as of September 2024)
After the COVID-19 pandemic dip, the Nifty Midcap 150 Index has moved up sharply and created stupendous wealth for its investors.
Over the last one year as well, despite the looming geopolitical tensions in many parts of the world, the Nifty Midcap 150 Index has clocked an appealing absolute total return of 48.2% as of September 30, 2024, perhaps as the Indian economy is perceived to be a "bright spot" in the global economy -- the fastest growing major economy.
Here's what Mr. Suresh Soni, CEO of Baroda BNP Paribas Mutual Fund, say about the fund's launch speaking to the press:
"According to the S&P Indices vs Active Report, 75% of mid/small-cap funds have underperformed their benchmarks over the last 10 years. Our NFO offers a low-cost, passive investment solution that aims to mirror the performance of the Nifty Midcap 150 Index, reducing the risk of underperformance and seeking to provide a better opportunity for growth."
Who Will Manage the Baroda BNP Nifty Midcap 150 Index Fund?
Mr. Neeraj Saxena is the designated fund manager for the Scheme.
Neeraj has over 20 years of rich experience in the Indian financial services industry, handling the responsibility of being a fund manager and dealer in the equity domain.
Before the joint venture between the Bank of Baroda and BNP Paribas Asset Management Asia Ltd to form Baroda BNP Paribas Mutual Fund came into effect in March 2022, Neeraj worked with BNP Paribas Mutual Fund as an equity dealer. After the merger took effect, he was promoted as a fund manager.
Before joining BBNPP AMC, Neeraj was the Assistant Vice President - Institutional Equity Sales at Stratcap Securities. He has also held notable positions like Head Communication Cell at Karvy Stock Broking and Senior Investment Advisor at Iden Investment Advisor.
At BBNPP AMC, Neeraj is currently managing the Baroda BNP Paribas Arbitrage Fund, Baroda BNP Paribas Nifty 50 Index Fund, Baroda BNP Paribas Nifty Bank ETF, and Baroda BNP Paribas Nifty200 Momentum 30 Index Fund.
How Much is the Minimum Investment in Baroda BNP Nifty Midcap 150 Index Fund?
During NFO and on a continuous basis, the minimum lump sum investment in Baroda BNP Nifty Midcap 150 Index Fund is Rs 1,000/- and in multiples of Re. 1/- thereafter.
In the case of the Systematic Investment Plan (SIP), for daily, weekly, and monthly SIP, the minimum investment is Rs 500/- and in multiples of Re. 1/- thereafter.
For quarterly SIP, the minimum investment amount is Rs 1,500/- and in multiples of Re. 1/- thereafter. There is no upper limit.
Baroda BNP Nifty Midcap 150 Index Fund offers Regular and Direct Plans with a Growth option.
[Read: IDCW vs Growth Option: Which One Should You Opt for?]
Who Should Consider Investing in Baroda BNP Nifty Midcap 150 Index Fund?
An index fund being a passive investment, carries lesser risk as compared to an actively managed fund.
That being said since a dominant portion of the Scheme's assets will be invested in the equity and equity-related securities covered by the Nifty Midcap 50 Index (including derivatives), the Fund will carry very high risk. Watch this video:
Although the Nifty 150 Midcap Index is off its high in the recent correction of the Indian equity market, valuations still look expensive in the midcap (and smallcap) segment of the Indian equity market. The Price-to-Equity Ratio and Price-to-Book Value Ratio of the Nifty 150 Midcap Index are around 43x and 5x, respectively, higher than the 4-year average.
These levels, in my view, do not offer a decent margin of safety given that Indian equities are already trading a premium compared to global peers.
Now while some may justify the premium that Indian equities command relative to global peers as India is the fastest-growing major economy (at the fifth spot), in my view, given that there are other headwinds in play, such as escalating geopolitical tensions, geoeconomic fragmentation and uncertainty about future economic growth; it is not a very conducive environment to make fresh invest in midcaps (and smallcaps).
Even if you have a very aggressive investor, who has the stomach for very high risk, you need to be careful when approaching midcaps (and smallcaps) and avoid getting swayed by irrational exuberance.
To know more about the Baroda BNP Nifty Midcap 150 Index Fund, read the Scheme Information Document and Key Information Memorandum.
Make an informed investment decision and be thoughtful in your approach.
Happy Investing!