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At a time when volatility in the Indian equity market has spiked in the Indian equity market due to the ongoing general elections and geopolitical uncertainty, Kotak Mutual Fund has come up with a New Fund Offer: Kotak NIFTY 100 Low Volatility 30 Index Fund.
It is an open-ended passively managed equity scheme replicating the replicating/tracking the NIFTY 100 Low Volatility 30 Index. In other words, the Scheme will benchmark its performance against the NIFTY 100 Low Volatility 30 Index.
Only around 5% of the fund's assets will be allocated to debt & money market instruments for liquidity purposes.
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 investment objective of the Scheme will be achieved.
The NIFTY 100 Low Volatility 30 Index aims to measure the performance of the low-volatile securities in the large market capitalisation segment. The securities of this index are from the Nifty 100 index and are available for trading in the Futures & Option (F&O) segment. The selection of securities and their weights in Nifty 100 Low Volatility 30 are based on volatility. The volatility of securities is calculated as the standard deviation of daily price returns (log-normal) for the last one year. This index is re-balanced quarterly in March, June, September and December to determine the entry and exit of stocks.
The NIFTY 100 Low Volatility 30 Index has representation across sectors (see Table 1) and currently its top constituents include companies such as ICICI Bank, HUL, Asian Paints, ITC, Titan, Britannia industries and so on.
Table 1 & 2: Sector Representation and Top Constituents of NIFTY 100 Low Volatility 30 Index
(Source: NSE Indexogram Factsheet)
The NIFTY 100 Low Volatility 30 Index, compared to the broader indices, viz. the Nifty 50 TRI and Nifty 100 TRI, has displayed lower volatility as seen in the graph below.
Graph 1: The NIFTY 100 Low Volatility 30 Index has Truly been Less Volatile
The NIFTY 100 Low Volatility 30 Index representation to large-cap companies with low volatility makes the fund less risky than any Nifty 100 Index Fund or other active funds.
Over a period of 3 years, 5 years, and 7 years, the NIFTY 100 Low Volatility 30 Index has clocked a decent CAGR of 17.7%, 13.1%, and 14.5% respectively, as of April 30, 2024.
In comparison, the Nifty 100 TRI over a 3-year, 5-year, and 7-year has clocked a CAGR of 17.5%, 12.4%, and 12.7%, respectively as of April 30, 2024.
Moreover, during market corrections and bear phases, such as the Global Financial Crisis (January 2008 to October 2008), the European Debt Crisis (January 2011 to December 2011), the Global sell-off of 2015-16, and the COVID-19 pandemic, the NIFTY 100 Low Volatility 30 Index has witnessed lower drawdown than the broader Nifty indices (see Graph 2 below).
Graph 2: NIFTY 100 Low Volatility 30 Index has Arrested the Downside Better
As mentioned, the NIFTY 100 Low Volatility 30 Index represents large-cap companies. The valuation premium large-caps currently are lower than that of mid-caps and small-caps. Simply put, large-caps are less expensive than mid-caps and small-caps in the current market conditions.
[Read: Do Large Cap Funds Make More Sense in An Overheated Equity Market?]
Here's what Mr. Nilesh Shah, the Managing Director of Kotak Mutual Fund said:
"At Kotak Mutual Fund, we continually strive to provide our investors with diverse investment solutions. The launch of the Kotak Nifty 100 Low Volatility 30 Index Fund is aligned with our commitment to offer products that cater to different risk appetites and investment horizons. Currently, large-caps are at reasonable valuations as compared to mid-caps and small-caps. This fund offers investors an opportunity to invest in a rule-based index that invests in low volatile large-cap companies across different sectors."
Kotak NIFTY 100 Low Volatility 30 Index Fund will be managed by Mr. Devender Singhal and Mr. Satish Dondapati -- the designated fund manager for the equity investments of the Scheme.
Mr. Abhishek Bisen will be the Fund Manager for the debt securities of the Scheme.
Mr. Devender Singhal has around a two-decade-long experience in equity research and fund management. He has been associated with the Kotak Group since July 2007. Apart from being a fund manager, Mr. Singhal is also the Executive Vice President.
He holds a BA (Hons) degree in Mathematics and a PDGBM (Finance). He manages multiple other mutual fund schemes at the fund house.
Here's what Mr. Singhal said when speaking to the media:
"Investors looking to invest in large companies and wanting further lower volatility can now opt for Nifty 100 low volatility 30 index as an investment option. A bouquet of 30 large-cap companies from the Nifty 100 index that constitutes this fund can help investors diversify their portfolios for long-term capital appreciation. We are excited to launch the Kotak Nifty 100 Low Volatility 30 Index Fund NFO."
Mr. Satish Dondapati has over 16 years of experience in ETFs. He joined Kotak AMC in March 2008 in the Products Department. He is an MBA (Finance). He manages various other passive funds at Kotak Mutual Fund.
Mr. Abhishek Bisen has done BA in Management and an MBA (Finance). He has been associated with the company since October 2006 and his key responsibilities include fund management of debt schemes.
The scheme is available for subscription during the New Fund Offer period from May 22, 2024, to May 31, 2024, and has both Regular Plan and Direct Plan options for investment.
The minimum investment amount is Rs 100/- and in multiples of Re 1 thereafter for lumpsum and Systematic Investment Plan (SIP).
Note if you are considering investing in this scheme, make sure your risk appetite is very high and an investment horizon of around 5 years.
To know more about Kotak NIFTY 100 Low Volatility 30 Index Fund download and read this
Happy Investing!