ICICI Prudential Nifty Financial Services Ex-Bank ETF: Will it Prove to be a Worthy Diversifier?

Nov 25, 2022
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The financial services sector plays a major role in contributing to the Indian economy and becoming the world's fastest-growing economy. It is a fairly diversified industry that is rapidly growing as a result of digitisation and the introduction of new products and services. Low market penetration across segments provides more room for growth. The financial services sector provides services from offline to online, cash to UPI, FDs to MFs, and has consistently evolved throughout the years. In addition, RBI has recently been ensuring strict norms towards several NBFCs and Fintech platforms to avoid fraudulent practices.

Given that, investors are seeking to purchase stocks of companies operating in the financial services industry in an effort to benefit from the sector's expansion. The Nifty Financial Services Ex-Bank Index tracks the performance of the top 30 financial services providers and enables you to gain from the sector's wide range of diversification beyond banks.

What are Exchange-traded funds?

An ETF, or exchange traded fund, is a type of mutual fund scheme that tracks an index, a commodity, bonds etc. ETFs are passively managed, when you buy shares/units of an ETF, you are buying shares/units of a portfolio that tracks the yield and return of its native index.

 

ICICI Prudential Mutual Fund has launched ICICI Prudential Nifty Financial Services Ex-Bank ETF, it is an open-ended Exchange Traded Fund tracking Nifty Financial Services Ex-Bank Index.

Commenting on the launch of this NFO, Mr Chintan Haria, Head- Product Development & Strategy at ICICI Prudential AMC, said, "There is increasing participation from all parts of society in Credit, Investments and Insurance, and as a result, the sector is poised to witness an unprecedented boom. We are also in the middle of a digital revolution that has contributed to the growth of financial services companies, who are adapting to this change faster. The sector is on the rise, and the road thus far has been paved by various reforms, FDI policy relaxation, tax exemptions, etc., which will further encourage the industry to spend on expansion. Investors must tap into this universe of companies and gain from their growth through ICICI Prudential Nifty Financial Services Ex-Bank ETF."

Table 1: Details for ICICI Prudential Nifty Financial Services Ex-Bank ETF

Type An open-ended exchange-traded fund tracking Nifty Financial Services Ex-Bank Index. Category Exchange-traded Fund
Investment Objective The investment objective of the scheme is to provide returns before expenses that correspond to the total return of the underlying index subject to tracking errors. However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.
Min. Investment Rs 1,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
Entry Load Not Applicable Exit Load Nil
Fund Manager - Mr Kayzad Eghlim
- Mr Nishit Patel
Benchmark Index Nifty Financial Services Ex-Bank TRI
Issue Opens: November 16, 2022 Issue Closes: November 25, 2022
(Source: Scheme Information Document)
 

What will be the investment strategy for ICICI Prudential Nifty Financial Services Ex-Bank ETF?

ICICI Prudential Nifty Financial Services Ex-Bank ETF will be invested in stocks constituting the underlying index in the same proportion as in the index and endeavour to track the benchmark index.

The performance of the scheme may not be commensurate with the performance of the underlying index on any given day or over any given period. Such variations are commonly referred to as tracking errors. The fund intends to maintain a low tracking error by aligning the portfolio in line with the index. The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of the scheme.

ICICI Prudential Nifty Financial Services Ex-Bank ETF: Will it Prove to be a Worthy Diversifier?
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Similarly, in the event of a constituent stock being demerged/merged/delisted from the exchange or due to a major corporate action in a constituent stock, the fund may have to reallocate the portfolio and seek to minimise the variation from the index.

How will the scheme allocate its assets?

Under normal circumstances, the scheme aims to invest in the constituent of the Nifty Financial Services Ex-Bank Total Return Index, in the range of 95% to 100%. A small portion (0-5% of the Net Assets) of the fund may be kept liquid to meet the liquidity and expense requirements.

Table 2: Asset Allocation for ICICI Prudential Nifty Financial Services Ex-Bank ETF

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related securities of companies constituting the underlying index (Nifty Financial Services Ex-Bank Index) 95 100 Very High
Money market instruments including TREPs 0 5 Low to Medium
(Source: Scheme Information Document)
 

About the benchmark

The Nifty Financial Services Index is designed to reflect the behaviour and performance of the Indian financial market, including banks, financial institutions, housing finance, insurance companies and other financial services companies. The index comprises of 20 stocks that are listed on the National Stock Exchange (NSE).

NIFTY Financial Services Index is computed using the free float market capitalisation 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 capitalisation value.

Here's the list of all constituents by their weightage under the index as on October 31, 2022:

(Source: ICICI Pru Nifty Financial Services Ex-Bank ETF PPT)
 

# Note that the index will rebalance semi-annually.

Who will manage the ICICI Prudential Nifty Financial Services Ex-Bank ETF?

Mr Kayzad Eghlim and Mr Nishit Patel will be the designated fund managers for this scheme.

Mr Kayzad Eghlim has more than 30 years of experience in financial services, and he holds an MBA, M. Com, and B. Com degrees. Before joining ICICI Pru AMC, he was associated with IDFC Investment Advisors Ltd. as a Dealer - Equities; Prime Securities as a Manager; Canbank Mutual Fund (IS Himalayan Fund) as a Fund Manager; and Canbank Mutual Fund as Equity Dealer assisting the Fund Manager. He worked with the Primary Market Department (IPO) at the beginning of his career.

At ICICI Pru AMC, Mr Kayzad currently manages ICICI Prudential Equity - Arbitrage Fund, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex ETF, ICICI Prudential Nifty Index Fund, ICICI Prudential Equity Savings Fund, ICICI Prudential Nifty Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bharat 22 FOF, ICICI Prudential Bank ETF, ICICI Prudential Midcap Select ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential Healthcare ETF, ICICI Prudential FMCG ETF, ICICI Prudential Consumption ETF, ICICI Prudential Smallcap 250 Index Fund, ICICI Prudential Private Banks ETF, ICICI Prudential Silver ETF Fund of Fund, ICICI Prudential Nifty Auto ETF, ICICI Prudential Nifty Infrastructure ETF, ICICI Prudential Nifty 200 Momentum 30 Index Fund, and ICICI Prudential Nifty IT Index Fund.

Mr Nishit Patel joined ICICI Prudential Asset Management Company Limited in November 2018 and was working under ETF Business. He is a Chartered Accountant and B. Com graduate. At ICICI Pru AMC, Mr Patel currently manages ICICI Prudential Midcap Select ETF, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex Index Fund, ICICI Prudential Nifty Index Fund, ICICI Prudential Regular Gold Savings Fund (FOF), ICICI Prudential Gold ETF, ICICI Prudential Sensex ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential BHARAT 22 FOF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bank ETF, ICICI Prudential Private Banks ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential FMCG ETF, ICICI Prudential Healthcare ETF, ICICI Prudential Consumption ETF, ICICI Prudential Smallcap Index Fund, ICICI Prudential Silver ETF Fund of Fund, ICICI Prudential Passive Multi-Asset Fund of Funds, ICICI Prudential Nifty Auto ETF, ICICI Prudential Nifty 200 Momentum 30 ETF, ICICI Prudential Nifty Infrastructure ETF, and ICICI Prudential Nifty 200 Momentum 30 Index Fund.

 

Should You Invest in ICICI Prudential Nifty Financial Services Ex-Bank ETF?

ICICI Prudential Nifty Financial Services Ex-Bank ETF will follow a passive investment strategy and seek to track and invest in the constituents of the Nifty Financial Services Ex-Bank Index in the same proportion (weights) as the index, subject to tracking errors.

The underlying index comprises shares of housing finance companies, non-banking finance companies, holding companies, asset managers, insurance companies, brokerages, exchanges and new-age tech companies. These are high-growth segments in an expanding economy. The scheme offers investors exposure to the top 30 financial services companies, except for banks, and an opportunity to benefit from the growth across the diversified spectrum of financial services.

However, this scheme is a sector-oriented ETF aiming to invest only in the financial services sector, creating a concentration risk due to limited exposure. In addition, the persistent repercussions of the geopolitical tension, spiralling inflation and the fears of a possible recession in the US in 2023 may cause a significant risk to economic growth and continue the prevailing high market volatility.

The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is uncertain. These factors, among many others, could have a bearing on the index and its top constituents, which may impact the scheme's performance and may affect negatively if the sector moves out of favour.

This makes ICICI Prudential Nifty Financial Services Ex-Bank ETF a highly risky investment proposition. It is suitable only for investors with a high-risk appetite, a long investment horizon of at least 5-7 years, and those with a better understanding of the financial services sector may consider investing in this scheme.

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Warm Regards,
Mitali Dhoke
Research Analyst



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