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The Tata Group, one of the oldest conglomerates in India, commands a commendable reputation. The Tata brand is synonymous with trust, integrity and quality and is a valuable brand in India.
Over the years, the Tata Group has spread its wings in a variety of businesses and invested heavily in technology and innovation, keeping a customer-centric approach.
Today, Tatas have a significant global presence with operations in numerous countries and has made remarkable achievements in the 'Make in India' story. Over the years, many of the Tata companies have created wealth for its investors.
Like the Tatas, there are other industrial houses or business houses in India that have contributed to India's growth story, such as the Birlas, Adani, Reliance, Mahindra & Mahindra, the JSW Group (led by Sajjan Jindal), and many others with their distinct style of functioning. Each of these business groups have diversified in various sectors.
For investors wanting to gain exposure to select large businesses, Tata Mutual Fund has launched the first of its kind, the Tata BSE Select Business Group Index Fund.
It is an open-ended scheme replicating/tracking the BSE Select Business Groups Index - Total Return Index (TRI).
During the NFO period, the Tata BSE Select Business Group Index Fund is open for subscription from November 25, 2024, to December 9, 2024. Thereafter the Scheme will re-open for continuous sale and purchase on December 18, 2024.
The Tata BSE Select Business Group Index Fund holds the mandate to invest around 95% to 100% of its total assets in securities covered by the BSE Select Business Groups Index.
The BSE Select Business Groups Index comprises companies from seven of India's largest business groups. These conglomerates span 19 diverse industries, reflecting central themes of India's economic growth.
The Scheme may take an exposure (of up to 20% of the net assets) to equity derivatives instruments 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.
The Scheme will also invest up to 5% of its total assets in Debt Securities & Money Market Instruments, including units of mutual funds.
Debt / Money Market Instruments include instruments like but are not limited to Commercial Paper, Certificates of Deposit, Treasury Bills, Bills Rediscounting, Short-term Corporate Bonds, Repos, Short-term Government securities and any other such short-term instruments as may be allowed under the regulations prevailing from time to time.
When it comes to units of mutual funds, the Scheme will invest in liquid/money market/debt mutual fund schemes of Tata Mutual Fund or in the Scheme(s) of other mutual funds in conformity with the investment objective/ asset allocation of the Scheme.
[Read: Best Liquid Funds for 2025]
The allocation of up to 5% to Debt Securities & Money Market Instruments and units of mutual funds is mainly for liquidity purposes.
Pending deployment of funds of the Scheme in securities in terms of the investment objective may be invested in short-term deposits of scheduled commercial banks.
The Scheme may participate in securities lending. Not more than 20% of the net assets of the Scheme can be deployed in stock lending and not more than 5% of the fund can be deployed in stock lending to any single counterparty.
The Tata BSE Select Business Group Index Fund will not invest in the following:
- Securitised debt
- AT1 and AT2 Bonds
- Credit Default Swaps (CDS)
- Repo in corporate debt securities and corporate reverse repo
- Debt instruments having Structured Obligations (SO) / Credit Enhancements (CE)
- Unrated debt instruments
- Overseas securities
- REITs and InvITS
Further, the Scheme will not engage in short selling of securities.
What Is the Investment Objective?
The investment objective of the scheme is to provide returns, before expenses, that commensurate with the performance of the BSE Select Business Groups Index (TRI), subject to tracking error.
However, there is no assurance or guarantee that the investment objective of the scheme will be achieved. The scheme does not assure or guarantee any returns.
What Is the Investment Strategy?
To achieve its stated investment objective, the Tata BSE Select Business Group Index Fund will be managed passively and will employ an investment approach designed to replicate/track the performance of the BSE Select Business Groups Index (TRI).
The Scheme seeks to achieve this goal by investing in securities constituting the Index in the same proportion as in the Index. The Scheme will invest at least 95% of its total assets in the securities comprising the Underlying Index.
The Scheme may also invest in debt/money market instruments including units of mutual funds to meet the liquidity and expense requirements.
The Scheme will endeavour to minimize the tracking error by:
- Rebalancing of the portfolio
- Setting off incremental subscriptions against redemptions
- Use of derivatives for portfolio rebalancing and efficient portfolio management
- Fast track in expediting in deployment of Cash
- Maintaining low levels of Cash
The AMC would monitor the tracking error of the Scheme on an ongoing basis and would seek to minimize tracking error to the maximum extent possible. The tracking error based on the past one year's rolling data shall not exceed 2%.
However, in case of events like dividend issuance by constituent members, rights issuance by constituent members, and market volatility during rebalancing of the portfolio following the rebalancing of the underlying basket, etc. or in abnormal market circumstances, which are beyond the control of the AMCs, the tracking error may exceed 2% and the same shall be brought to the notice of Trustees. However, the Fund will endeavour to limit the tracking error within 2% limits.
The Scheme will benchmark its performance against the BSE Select Business Groups Index (TRI).
About the BSE Select Business Groups Index
The BSE Select Business Groups Index (launched on October 8, 2024, with the base date as June 20, 2014) measures the performance of the top 30 companies from the largest seven business groups in India, selected based on free-float market capitalization from the BSE 500 index.
The constituents are weighted by float-adjusted market capitalization, subject to an individual stock weight cap of 23% and individual business group weight cap of 23% applied at each quarter rebalancing. The index is rebalanced semi-annually.
The index excludes the companies belonging to the Financial Services sector.
For this index, a business group comprises:
- 2 or more listed companies from different industries that are subsidiaries/associates/ promoted by a common promoter company, or
- Have cross holdings in each other and belong to the same promoter group, or
- Companies that are promoted by different entities within the same group
However, mere shareholding in another company without the investor company being classified as a promoter by the investee company will not make the two companies part of the same business group.
The maximum number of business groups in the index is 7.
As per the November 2024 factsheet, the top constituents of this index are as under:
Graphs A and B: Top Constituents and Sector Weightage of the BSE Select Business Groups Index
(Source: Factsheet as released by Asia Index Private Ltd.)
As seen above, the BSE Select Business Groups Index has representation to sectors such as consumer discretion, commodities, Information Technology (IT), energy, and so on.
Here's how this index has performed across time periods:
Table: Returns and Risk of the BSE Select Business Groups Index
(Source: Factsheet as released by Asia Index Private Ltd.)
As seen above, over a longer horizon the BSE Select Business Groups Index has rewarded investors decently well.
Here's what Mr Anand Vardarajan, Chief Business Officer of Tata Mutual Fund said in a press release on the launch of the fund:
"We are excited to launch the Tata BSE Select Business Group Index Fund, which provides investors with a unique opportunity to participate in the growth story of India's leading conglomerates. These businesses have demonstrated their ability to adapt and thrive in a dynamic market environment, making them one of the attractive investments for long-term investors.
The business groups' diversified operations, technological advancements, and strong market presence position them as key contributors to the nation's economic aspirations. By investing in this fund, investors can gain exposure to these dynamic companies and participate in India's economic success."
Who Will Manage Tata BSE Select Business Group Index Fund?
Mr Kapil Menon will manage the Scheme.
Kapil is a commerce graduate (B.Com) has a collective work experience of 20 years and is a seasoned investment professional. Kapil joined Tata Asset Management in 2006, starting his journey in the investment team.
Demonstrating his expertise and versatility, he was entrusted with the additional responsibilities of an Equity Dealer in 2021.
Further from April 2024, he was assigned the role of Fund Manager for Index Funds. Before his tenure at Tata Asset Management, Mr. Kapil worked at CRISIL Ltd, where he contributed to the Financial Sector Ratings team.
At Tata Mutual Fund, Kapil manages various passively managed index funds and exchange-traded funds.
How Much is the Minimum Investment in the Tata BSE Select Business Group Index Fund?
During the NFO period the minimum investment in the Scheme is Rs 5,000/- and multiple of Re 1/- thereafter. In the case of SIP, the minimum instalment amount is RS 150/-.
In case you are an existing investor with Tata Mutual Fund, there is no minimum amount requirement for opting to switch "all units" from any existing schemes of Tata Mutual Fund to this Scheme.
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 Tata BSE Select Business Group Index Fund?
The fund is ideal for those investors who would like to invest in passively managed fund investing in a portfolio of companies forming part of the BSE Select Business Groups Index.
You could gain exposure to large business groups and diverse businesses. The composition of the fund will be dominated by large cap companies, as 25 out of 30 constituents of the said index are largecaps.
That being said, being a thematic index fund, there is a high concentration risk involved. On the risk-o-meter, the Tata BSE Select Business Group Index Fund is positioned as a very high-risk fund.
On valuations, the Price-to-Equity (PE) Ratio of the BSE Select Business Groups Index is currently around 28x and the Price-to-Book (PB) around 4x. These levels aren't cheap and one ought to be conscious that the margin of safety is still not very comforting.
To know more about the Tata BSE Select Business Group Index Fund, read the Scheme Information Document and Key Information Memorandum.
Make an informed investment decision and be a thoughtful investor.
Happy Investing!