Publish Date:
A slew of passively managed mutual fund schemes -- be it index funds or equity-oriented Exchange Traded Funds -- have been launched in the recent past offering investors a low-cost opportunity to take exposure to the respective indices, even strategic ones, market cap-oriented ones, as well as the thematic ones.
Navi Mutual Fund (formerly Essel Finance Mutual Fund, which was acquired in April 2021 by acquired by former Flipkart co-founder, Sachin Bansal and ex-banker, Ankit Agarwal), whose key focus has been rolling out passive managed mutual fund schemes, has introduced a new fund, Navi Nifty 500 Multicap 50:25:25 Index Fund. During the NFO period the available for subscription from July 18, 2024, to July 30, 2024.
Navi Nifty 500 Multicap 50:25:25 Index Fund, is an open-ended equity scheme replicating/tracking the Nifty 500 Multicap 50:25:25 Index – comprising of large cap, mid cap, and small cap companies.
The Scheme will mainly invest 95%-100% of its assets in equity and equity-related securities covered by the Nifty 500 Multicap 50:25:25 Index.
The Scheme may also take exposure to equity derivatives of the index itself or its constituent stocks as may be required in certain situations, wherein equity shares are unavailable, insufficient or for rebalancing in case of corporate actions for a temporary period etc. However, the gross position to such derivatives will be restricted to 20% of the net assets of the equity component.
Up to 5% may be invested in debt & money market instruments, viz. commercial papers, commercial bills, treasury bills, Government securities, plus repo in corporate debt and corporate reverse repo as per the limits prescribed by SEBI.
What is the Investment Objective?
The investment objective of the scheme is to achieve a return equivalent to the Nifty 500 Multicap 50:25:25 Index by investing in stocks of companies comprising the Nifty 500 Multicap 50:25:25 Index, subject to tracking error.
However, there is no assurance that the investment objective of the Scheme will be achieved.
What is the Investment Strategy?
In the endeavour to achieve its stated objective, the Scheme will invest in stocks in proportion to the weightage of these stocks in the Nifty 500 Multicap 50:25:25 Index.
The portfolio follows the underlying 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.
The Scheme may also take exposure to equity derivatives of the index itself or its constituent stocks as may be required in certain situations.
The performance of the Scheme, however, may not be commensurate with the performance of the respective benchmark of the Schemes on any given day or over any given period. This is due to a tracking error. However, the Scheme intends to keep the tracking error low by managing the portfolio in line with the index.
The portfolio turnover will depend upon the extent of 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 Nifty 500 Multicap 50-25-25 Index.
Now, while these measures are expected to primarily mitigate the above risks, there can be no assurance that these risks will be completely eliminated.
Navi Nifty 500 Multicap 50:25:25 Index will benchmark its performance against the Nifty 500 Multicap 50:25:25 Index.
[Read: Best Multi Cap Funds for 2024]
About the Nifty 500 Multicap 50:25:25 Index
The Nifty 500 Multicap 50:25:25 Index, launched on December 2, 2020 (with a base date, of April 1, 2005), aims to measure the performance of portfolios of large, mid and small market capitalisation companies with target weights assigned to each size segment.
This index includes all companies that are part of the Nifty 500 index. While in the Nifty 500 index, the total weight of each size segment (Large, Mid and Small cap) is based on the total free float market capitalisation of all stocks falling within that size segment, in the Nifty 500 Multicap 50:25:25 Index, the total weight of each of these three segments (Large, Mid and Small cap) is fixed at 50%, 25% and 25% respectively at every quarterly rebalance date.
The weight of 50%, 25% and 25% for the three segments are further divided amongst stocks within the respective segment based on the underlying stock’s free float market capitalisation. The weight of each size segment may be different from its respective capped level between two rebalance dates due to the price drift of underlying stocks.
Table: Top Constituents of the Nifty 500 Multicap 50:25:25 Index
(Source: NSE Indexogram Factsheet as of June 28, 2024)
Since its inception, the Nifty 500 Multicap 50:25:25 Index has clocked a price return of 15.4% CAGR and a total price return (which accounts for dividends) of 16.9% CAGR.
Graph: Long-Term Performance of the Nifty 500 Multicap 50:25:25 Index
(Source: NSE Indexogram Factsheet as of June 28, 2024)
After the bottom of the COVID-19 pandemic, there has been a sharp run in the Nifty 500 Multicap 50:25:25 Index. In the last one year, the Nifty 500 Multicap 50:25:25 Index has delivered an impressive price return of 44.5% and a total return (accounting for dividends) of 45.8% on an absolute basis.
At the launch of the Navi Nifty 500 Multicap 50:25:25 Index Fund, here’s what the fund house said in a press release:
“The Navi Nifty 500 Multicap 50:25:25 Index Fund offers a well-balanced investment opportunity for those looking to tap into the Indian market. With 50 per cent allocated to large-cap companies for balanced allocation and the rest to mid-and small-cap companies for potential growth, this fund mitigates the risk of individual stock selection or market-timing, thus ensuring a balanced and strategic approach”
Who Will Manage Navi Nifty 500 Multicap 50:25:25 Index Fund?
The Scheme will be managed by Mr. Aditya Mulki and Mr. Ashutosh Shirwaikar.
Aditya Mulki has an experience of nearly a decade in equity research and fund management. He is a commerce graduate (B.Com) and a CFA charter holder. He joined Navi Mutual Fund in February 2022 as a fund manager and before that worked for close to 6 years at Quantum Advisors Ltd. as an equity research analyst. At present, he manages various index funds and a few other equity schemes at Navi Mutual Fund.
Ashutosh Shirwaikar is a buy-side equity research analyst with an experience of more than 7 years. He has a bachelor in technology degree (B.Tech) and an MBA (Finance). He joined Navi Mutual Fund in January 2022, and before that, with Quantum Asset Management Company Pvt. Ltd for close to 6 years. He co-manages various index funds and equity schemes at Navi Mutual Fund.
How much is the Minimum Investment in Navi Nifty 500 Multicap 50:25:25 Index Fund?
The minimum investment in the Scheme is Rs 10/ and in multiple of Re 1/- during the NFO period, and offers both, the Direct Plan and Regular Plan for investment.
Who Should Consider Investing?
Investors who want to follow a multicap approach to wealth creation with equities with higher exposure to large caps, and a smaller allocation to mid caps and small caps (25% each towards) plus diversification, may consider Navi Nifty 500 Multicap 50:25:25 Index Fund, a low-cost investment option. The returns would be mostly in line with the underlying benchmark index, i.e. the Nifty 500 Multicap 50:25:25 Index, subject to tracking error.
That said, note that this Scheme is indicated to command a very high-risk appetite going by the risk-o-meter.
To know more about the Navi Nifty 500 Multicap 50:25:25 Index Fund Scheme Information Document and Key Information Memorandum.
Happy Investing!