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Kotak Mutual Funds, over the last couple of months, has launched a slew of new funds – both, active and passively managed ones -- banking on the upbeat market sentiments. Lately, the fund house has now come up with a New Fund Offer (NFO) of Kotak Nifty Midcap 50 Index Fund. During the NFO period, the scheme is open for subscription from July 25, 2025, to August 8, 2024.
It is an open-ended scheme replicating/tracking the Nifty Midcap 50 Index. In other words, the Scheme will benchmark its performance against the Nifty Midcap 50 Index (Total Return Index).
Around 95%-100% of its total assets will be invested in equity and equity-related securities covered by the Nifty Midcap 50 Index.
The Scheme may also 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. The equity exposure for non-hedging purposes shall be up to 20% of equity and equity-related securities of the Scheme.
Up to 5% of the total assets will be in debt & money market instruments. Money market instruments include 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 (RBI) from time to time and subject to regulatory approval.
What is the Investment Objective?
The investment objective of the Kotak Nifty Midcap 50 Index Fund 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 guarantee or assurance that the investment objective of the scheme will be achieved.
What is the Investment Strategy?
To achieve this investment objective, being an Index Fund the scheme will follow a passive investment strategy. The investments will be made in the same proportion as in the Nifty Midcap 50 Index.
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 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. There is no additional element of volatility or stock concentration on account of fund manager decisions.
As mentioned earlier, the Scheme may take exposure to derivatives 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.
A small portion of the total assets (up to 5%) will be held as cash or will be invested in debt and money market instruments (including TREP or in alternative investments for the TREPs as may be provided by RBI) to meet the liquidity requirements under the Scheme.
Kotak NIFTY Midcap 50 Index Fund will benchmark its performance against the Nifty Midcap 50 Index (Total Return Index).
About the Nifty Midcap 50 Index
The Nifty Midcap 50 index represents the top 50 companies based on full market capitalisation from the Nifty Midcap 150 index and on which derivative contracts are available on the National Stock Exchange (NSE).
The Nifty Midcap 50 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 capitalization value.
Table: Top Constituents of the Nifty Midcap 50 Index
(Source: NSE Indexogram Factsheet as of June 28, 2024)
The Nifty Midcap 50 Index has representation to sectors such as financial services, capital goods, healthcare, auto & auto components, IT, and telecom among others.
Graph: Long-Term Performance of the Nifty Midcap 50 Index
(Source: NSE Indexogram Factsheet as of June 28, 2024)
Since the lows of the COVID-19 pandemic, the Nifty Midcap 50 Index has rallied remarkably (as more investors chased midcaps) and clocked stellar returns.
Over the last 5 years, the compounded annualised price return of the Nifty Midcap 50 Index is 31.1%, while the total returns (which accounts for dividends) is 32.9% CAGR (as of July 30, 2024).
Here’s what Mr Nilesh Shah, the Managing Director of Kotak Asset Management Company (AMC), said about the fund launch:
“At Kotak Mutual Fund, we continually strive to provide our investors with diverse investment solutions. The launch of the Kotak Nifty Midcap 50 Index Fund aligns with our commitment to offering active and passive products that cater to different risk appetites and investment horizons. While the Midcap 50 Index presents a mixed landscape with varying opportunities across sectors, this index fund allows investors to gain focused exposure to a select group of top midcap companies within the Nifty Midcap 150 Index. This index fund facilitates investors to capitalise on the potential of the midcap segment. However, it is important to be cognizant of proper asset allocation of your investments before investing.”
Mr Devinder Singhal, the Executive Vice President and Fund at Kotak AMC said,
“The Kotak Nifty Midcap 50 Index Fund is an addition to our passive product line-up, catering to investors’ interest in India’s Midcap space. Midcaps play a crucial role in key sectors of our economy, from Capital Goods and finance to healthcare and information technology. While individual Midcap stocks may exhibit varying performance, this index-based approach allows investors to potentially benefit from the overall growth and innovation potential of the mid-sized companies.”
Who Will Manage Kotak Nifty Midcap 50 Index Fund?
Mr Devender Singhal and Mr Satish Dondapati will be 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 AMC. Before that, he was part of various PMS like Kotak, Religare, Karvy and P N Vijay Financial Services.
He holds an honours degree in mathematics from Delhi University and PGDM (Finance, Insurance).
Currently, he is managing assets across multicap and hybrid strategies, plus various 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 has been there with Kotak AMC since March 2008, and before that was in the mutual fund product team of Centurion Bank of Punjab. He holds an MBA (Finance).
Mr Bisen has been associated with Kotak AMC since October 2006 and his key responsibilities include fund management of debt schemes. Mr Kotak AMC, Mr Bisen has worked with Securities Trading Corporation of India Ltd where he was looking at Sales & Trading of Fixed Income Products apart from doing Portfolio Advisory. His earlier assignments also include two years of merchant banking experience with a leading merchant banking firm. He holds a bachelor’s degree in arts (BA – Management) and an MBA (Finance).
How much is the Minimum Investment in Kotak Nifty Midcap 50 Index Fund?
During the NFO period, i.e. from July 25, 2024, to August 8, 2024, the minimum investment in the Scheme is Rs 100/- and in multiple of Re 1/- for initial/switch-in as well as SIPs during the NFO period, and offers both, the Direct Plan and Regular Plan for investment.
Who Should Consider Investing in Kotak Nifty Midcap 50 Index Fund?
An index fund being a passive investment carries lesser risk as compared to active fund management. 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 Kotak Nifty Midcap 50 Index Fund will carry very high risk. Watch this video:
In other words, only those who have a very high risk appetite while looking for long-term capital growth, and an investment time horizon of around 5 to 7 years or so, may consider Kotak Nifty Midcap 50 Index Fund. The fortune of the Scheme will be closely linked to the performance of the NIFTY Midcap 50 Index Fund.
Considering stretch valuations of the midcap segment of the Indian equity market, currently, 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 index fund.
To know more about the Kotak NIFTY Midcap 50 Index Fund read the Scheme Information Document and Key Information Memorandum.
Happy Investing!