Publish Date:
Amid a rally in the PSU index, Kotak Mutual Fund has introduced the Kotak BSE PSU Index Fund. During the New Fund Offer (NFO) period, the fund will be available for subscription from July 10, 2024 to July 24, 2024.
Kotak BSE PSU Index Fund is an open-ended scheme replicating/tracking the BSE PSU Index -- a diversified index of Public Sector Undertakings (PSUs).
The Scheme will mainly invest 95%-100% of its assets in equity and equity-related securities covered by the BSE PSU index.
Up to 5% may be invested in debt & money market instruments, viz. commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity of up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time and subject to regulatory approval.
What is the Investment Objective?
The investment objective of the scheme is to provide returns that, before expenses, corresponding to the total returns of the securities as represented by the underlying index, subject to tracking errors. However, there is no assurance that the objective of the scheme will be achieved.
What is the Investment Strategy?
Being an index fund, the Scheme will follow a passive investment strategy to achieve its stated investment objective. The investments in stocks will be in the same proportion as in the BSE PSU Index.
The portfolio follows the index and, therefore, the level of stock concentration in the portfolio and its volatility would be the same as that of the index, subject to tracking error. Thus, there is no additional element of volatility or stock concentration on account of fund manager decisions.
The Scheme may take exposure to equity derivatives of constituents or index derivatives of the underlying index for a short duration 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, as permitted by SEBI from time to time.
Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and the decision of the fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies.
The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments.
The investment strategy would revolve around reducing the tracking error through rebalancing of the portfolio, taking into account the change in weights of stocks in the index as well as the incremental collections/redemptions from the Scheme.
The small portion of up to 5%, which will be held in debt & money market instruments or cash, is for meeting the liquidity requirements under the Scheme.
As regards the portfolio turnover, the Scheme has no specific target relating to portfolio turnover. The turnover will depend upon the extent of the purchase and redemption of units and the need to rebalance the portfolio on account of changes in the composition, if any, and corporate actions of securities included in the BSE PSU Index.
Kotak BSE PSU Index Fund will benchmark its performance against the BSE PSU Index (Total Return Index).
About the BSE PSU Index
This index was launched on June 4, 2001, and it consists of major Public Sector Undertakings (PSUs) listed on the Bombay Stock Exchange (BSE). It tracks the performance of the listed PSU equities (all PSU stocks in the BSE 500 Index) and is a suitable benchmark for the government to monitor its wealth on the bourses.
Table: Top Constituents of the BSE PSU Index
(Source: BSE PSU Index Factsheet)
The BSE PSU Index since inception has delivered a price return of 13% CAGR.
Over the last one year, the BSE PSU Index has clocked an impressive absolute return of 109% (TRI), proving to be a rewarding sector for investors.
Here’s what Mr. Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company Ltd., said on the launch of Kotak BSE PSU Index Fund:
“At Kotak Mutual Fund, we continually strive to provide our investors with diverse investment solutions. The launch of the Kotak BSE PSU Index Fund is aligned with our commitment to offer products that cater to different risk appetites and investment horizons.
While PSU stocks present a mixed landscape with varying opportunities across sectors, this index fund allows investors to gain broad exposure to the PSU segment. This fund provides a structured approach to PSU investing, allowing investors to participate in the potential of this segment passively while managing risks through diversification.”
Who Will Manage Kotak BSE PSU Index Fund?
Mr. Devender Singhal and Mr. Satish Dondapati are the designated Fund Managers for the Scheme.
Mr. Abhishek Bisen will be the Fund Manager for the debt securities of the Scheme.
Mr. Singhal has more than 22 years of experience in fund management and equity research of which the last 15 years have been with Kotak Mutual Fund. Before that, he was a part of various PMSs like Kotak, Religare, Karvy and P N Vijay Financial Services. He holds an honours in mathematics from Delhi University and PGDM (Finance, Insurance). At Kotak AMC he is managing assets across multicap and hybrid strategies. He is also managing several other index funds and equity-oriented Exchange Traded Funds (ETFs) at the fund house.
Mr. Dondapati has over 16 years of experience in ETFs. He too co-manages various ETFs and index funds at Kotak Mutual Fund. He joined Kotak AMC in March 2008 and before that, he was in the product team of Centurion Bank of Punjab. He is an MBA (Finance).
Mr. Bisen has been associated with the company since October 2006 and his key responsibilities include fund management of debt schemes. Before joining Kotak AMC, he was working with Securities Trading Corporation of India Ltd where he was looking at Sales & Trading of Fixed Income Products apart from doing portfolio advisory. He holds a bachelor's degree in management (BA Management) and an MBA (Finance).
How much is the Minimum Investment in Kotak BSE PSU Index?
The minimum investment in the Scheme is Rs 100/-, for lump sum as well as for SIPs, and in multiple of Re 1/- during the NFO period.
Who Should Consider Investing?
Given the nature of the Scheme and its investment strategy, investors will be subject to sector concentration risk. Thus, only investors with a very high-risk appetite, wanting exposure to the PSU sector, and having a longer investment horizon may consider such an investment proposition.
Even if you have a very high-risk appetite, it is suggested to have a very small exposure to the overall equity portfolio to this fund.
To know more about the Kotak BSE PSU Index Fund read the Scheme Information Document and Key Information Memorandum.
Happy Investing!