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When the COVID-19 pandemic struck and lockdowns imposed, there was fear that it would impact India's consumption story. The Modi-led-NDA government amidst the pandemic, on October 20, 2020, came up with a package to give a boost to consumption. It had components to it -- providing impetus to consumer spending and spurring the capital expenditure cycle of states to possibly yield a multiplier effect on the economy.
The measures taken by the government seem to have worked, as after the lockdowns or travel restrictions were lifted partially or completely, consumer spending rebounded due to pent-up or revenge demand. Nearly four years since the pandemic, this rebound is seen across sectors: FMCG, consumer durables, travel & tourism, media & entertainment, retail (fashion, apparel, jewellery, accessories), automobile (two-wheeler and passenger cars), and many more sectors.
India's favourable demographic dividend, increased hiring after the pandemic, rising income, the acceptance of hybrid and work-from-home work culture, and growing aspirations across the economic strata have also proved to be some of the abetting factors for India's consumption story. We have not only witnessed an increase in non-discretionary spending but also in discretionary goods and services and an e-commerce boom.
India's consumption story is alive and kicking and today is the major engine of India's economic growth (contributing more than 60% of India's GDP). Over time given that India is a "bright spot" in the global economy and enjoys a favourable demographic dividend, it is possible that the share of India's consumption in its GDP would increase.
Against this backdrop, SBI Mutual Fund -- India's largest mutual fund house by Average Assets under Management (AAUM) -- has launched the SBI Nifty India Consumption Index Fund. It is an open-ended equity scheme replicating/tracking the Nifty India Consumption Index.
During the NFO period, the Scheme is open for subscription from October 16, 2024, to October 24, 2024. Thereafter the scheme re-opens within 5 business days from the date of allotment.
Around 95% to 100% of the Scheme's total assets will be invested in equity & equity-related securities covered by the Nifty India Consumption Index.
The Scheme may take exposure to equity derivatives of constituents 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 subject to rebalancing within 7 days (or as specified by SEBI from time to time). Note, that the exposure of the scheme in derivative instruments for non-hedging and rebalancing purposes shall be up to 20% of the net assets of the Scheme.
The Scheme may engage in stock lending and borrowing up to 20% of the net assets of the scheme with maximum single intermediary exposure restricted to 5% of the net assets or as permitted by SEBI from time to time.
Up to 5% of the SBI Nifty India Consumption Index Fund's total assets would be invested in the Government Securities (G-secs) including Triparty Repo, and units of liquid mutual fund.
It may be noted that, after the closure of the NFO Period/pending deployment of the funds of the Scheme, the Scheme may park the funds in G-secs, including Triparty Repo, and units of liquid mutual fund until the full deployment is achieved.
The investment in units of liquid mutual fund is subject to prevailing regulatory limits of aggregate inter-scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company which shall not exceed 5% of the net asset value of the mutual fund.
The Scheme shall or will not invest in the following:
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Repo and reverse repo in corporate debt
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Credit Default Swaps
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Securitised Debt
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Unrated debt instrument
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Debt instruments having Structured Obligations (SOs) and Credit Enhancements (CEs)
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Debt instruments with special features
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REITs and InVITs
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ADR/ GDR/ Foreign Securities
Moreover, the Scheme shall not engage in short selling.
The investment manager would monitor the tracking error & tracking difference of the Scheme on an ongoing basis and would seek to minimize the same to the maximum extent possible.
Under normal circumstances, such tracking error is not expected to exceed 2% per annum. However, there can be no assurance or guarantee that the Scheme will achieve any particular level of tracking error/difference relative to the performance of the underlying index.
What Is the Investment Objective?
The investment objective of the scheme is to provide returns that correspond to the total returns of the securities as represented by the underlying index, subject to tracking error.
However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.
What is the Investment Strategy?
In the endeavour to achieve its statement investment objective, the Scheme while tracking the Nifty India Consumption Index, will use a "passive" or indexing approach.
Unlike other funds, the scheme will not try to "beat" the market it tracks and does not seek temporary defensive positions when the market declines or appears overvalued.
SBI Asset Management Company (AMC) will not make any judgments about the investment merit of a particular stock or a particular industry segment nor will it attempt to apply any economic, financial or market analysis. Indexing eliminates active management risks with regard to over/ underperformance vis-a-vis a benchmark.
The Scheme will primarily invest in the securities constituting the underlying index. However, due to corporate action in companies comprising of the index, the scheme may allocate/allot to securities which are not part of the index. The Scheme may hold up to 5% of its total assets in stocks not included in the corresponding Underlying Index.
For example, the AMC may invest in stocks not included in the relevant underlying index to reflect various corporate actions (such as mergers) and other changes in the relevant underlying index (such as reconstitutions, additions, deletions and these holdings will be in anticipation and in the direction of impending changes in the underlying index). These investments which fall outside the underlying index shall be rebalanced within 7 calendar days.
As regards the derivative strategy, the Scheme take exposure to derivatives for non-hedging purposes as permitted by regulations from time to time. However such exposure to derivative instruments will be in line with the investment objective and overall strategy of the Scheme.
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 performance of the Scheme will be benchmarked against the Nifty India Consumption Total Return Index (TRI).
About the Nifty India Consumption Index
The Nifty India Consumption Index (launched on July 12, 2011, with a base date of January 2, 2006) is designed to reflect the behaviour and performance of a diversified portfolio of companies representing the domestic consumption sector which includes Consumer Non-durables, Healthcare, Auto, Telecom Services, Pharmaceuticals, Hotels, Media & Entertainment, etc. and where more than 50% of company's revenue comes from domestic markets (other than export income).
The Nifty India Consumption Index comprises 30 companies listed on the National Stock Exchange (NSE) and is rebalanced semi-annually with the weightage of the index constituent (where applicable) capped at 10%.
At present, the top 10 constituents of the Nifty India Consumption Index are as under:
Table: Top 10 constituents of the Nifty India Consumption Index
(Source: NSE Indexogram Factsheet as of September 2024)
Since the base date of January 2, 2006, the Nifty Capital Markets Index has clocked a price return of 14.6% CAGR and a total return (which includes dividends) of 15.9% (as of September 30, 2024).
Graph: Long-term Performance of Nifty India Consumption Index
(Source: NSE Indexogram Factsheet as of September 2024)
After the COVID-19 pandemic dip, the Nifty India Consumption Index has more than doubled and created wealth for investors.
Over the last one year, the Nifty India Consumption Index has clocked a stunning absolute total return of 53.1% as of September 30, 2024.
Here's what Mr. Shamsher Singh, MD & CEO, of SBI Funds Management, said in a press release:
"India's consumption growth is at a pivotal moment, driven by rising incomes, demographic shifts and structural changes like digitalization and urbanization. Key factors include a young and growing population, increasing discretionary spending, and the rise of premiumization in urban areas. As India becomes one of the world's top consumer markets, sectors like consumer durables, retail, healthcare, luxury good, FMCG, aviation and e-commerce stand to benefit significantly."
Who Will Manage SBI Nifty India Consumption Index Fund?
Mr. Harsh Sethi is the fund manager for SBI Nifty India Consumption Index Fund.
Harsh joined SBIFML in May 2007 as Product Manager and was responsible for product development and management. Currently, he is an Equity Dealer and Fund Manager.
He is managing SBI Nifty IT ETF, SBI Nifty Consumption ETF, SBI Nifty Private Bank ETF, SBI Nifty Midcap 150 Index Fund and SBI Nifty Smallcap 250 Index Fund.
Before joining SBI Funds Management Ltd. (SBIFML), he worked with J. P. Mangal & Co. as Senior Assistant (from March 2005 to March 2007) handling Audit & Taxation.
Harshil has an honour degree in commerce [B.com (Hons.)] and is a Chartered Accountant and Company Secretary by qualification.
How Much is the Minimum Investment in SBI Nifty India Consumption Index Fund?
During the NFO period, i.e. from October 16, 2024, to October 25, 2024, the minimum investment in the Scheme is Rs 5,000/- and multiple of Re 1/- thereafter.
The Scheme also offers daily, weekly, Monthly, Quarterly, Semi-Annual & Annual Systematic Investment Plan (SIP). In the case of daily SIP, the minimum SIP amount is Rs 500/- and in multiples of Re 1/- thereafter and a minimum of 12 instalments.
In the case of monthly SIP, the minimum is Rs 1000/- & in multiples of Re 1/- thereafter for a minimum of 6 months or a minimum of Rs 500/- & in multiples of Re 1/- thereafter for a minimum of 12 months.
In the case of quarterly SIP, the minimum is Rs 1500/- & in multiples of Re 1/- thereafter for a minimum of 1 year.
In the case of semi-annual and annual SIP, the minimum amount of investment is Rs 3,000/- and in multiples of Re 1/- thereafter for semi-annual SIP & Rs 5,000/- and in multiples of Re.1 thereafter in case of annual SIP. Minimum number of instalments is 4.
The Scheme offers both, the Direct Plan and Regular Plan for investment and each Plan offers the Growth Option and the Income Distribution cum Capital Withdrawal Option (IDCW) for investing.
[Read: IDCW vs Growth Option: Which One Should You Opt for]
Who Should Consider Investing in the SBI Nifty India Consumption Index Fund?
Investors looking for capital appreciation over the long-term by mainly investing in securities covered by the Nifty India Consumption Index could consider investing in the SBI Nifty India Consumption Index Fund by assuming a very high risk and keeping a time horizon of around 5 to 7 years.
Keep in mind, that the fortune of the Scheme will be closely linked with that of the underlying index, i.e. Nifty India Consumption Index. Simply put the returns would at most times commensurate with that of the index.
At present, the Nifty India Consumption Index is commanding a Price-to-Equity (P/E) ratio and a Price-to-Book Value (P/Bv) ratio of around 52x and 10x, respectively, as of September 30, 2024. These levels are rather lofty or expensive.
Although India's consumption story carries steam, the margin of safety at these levels does not seem comforting. Owing to geopolitical tensions India's economic growth falters and impacts consumption, it could weigh down on investment returns.
While India has exhibited remarkable growth in consumption, it is important it maintains strength and instil confidence to drive investment into the respective sectors of the consumption theme.
Be careful when approaching your investments, and avoid getting swayed by irrational exuberance.
To know more about the SBI Nifty India Consumption Index Fund, read the Scheme Information Document and Key Information Memorandum.
Make an informed investment decision and be a thoughtful investor.
Happy Investing!