ICICI Prudential Nifty IT Index Fund: Should You Invest in Technology Stocks?

Aug 06, 2022

Listen to ICICI Prudential Nifty IT Index Fund: Should You Invest in Technology Stocks?

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Our dependence on Information Technology for basic necessities of life is constantly growing. There's no turning back from technology now and it is bound to be an integral part of the new normal world post-pandemic.

India being inexpensive compared to the US is an attractive market for the IT sector. Indian IT sector is one of the leading outsourcing destinations across the globe. Also, IT is one of the sectors that stand to benefit from rupee depreciation as a large part of its revenue comes from export to the US markets. The exports of the Indian IT sector have grown by 65% in the last 7 years and the adoption of new-age technology and fintech has led to a revolution.

India is home to many tech-based UNICORN start-ups and several companies that are the market leaders in the IT sector. Since, disruptive technologies such as cloud computing, data analytics, blockchain, artificial intelligence, etc., are offering new windows of opportunities, the IT Industry in India is expected to contribute 10% to the GDP by 2025.

IT sector being the focus across the globe has been in long demand and has created a space in the investment portfolio for themselves, and it further accelerated during the COVID times when there was a demand for technology enhancements for most of the companies. India is on a track to becoming the Global hub of IT, and the sector is expected to continue a 'double-digit' growth trajectory in the years to come.

Many investors are seeking to invest in IT schemes because of the astounding returns given by these schemes in the recent past. To be a part of the digital transformation, take exposure to the IT sector by passively investing in the Nifty IT Index. ICICI Prudential Mutual Fund has launched ICICI Prudential Nifty IT Index. It is an open-ended Index scheme replicating the Nifty IT Index. A passively managed sectoral fund that aims to benefit from the growth potential of the top IT companies.

Table 1: Details for ICICI Prudential Nifty IT Index Fund

Type An open-ended Index scheme replicating the Nifty IT Index Category Index Fund
Investment Objective The objective of the Scheme is to invest in companies whose securities are included in the Nifty IT Index and subject to tracking errors, to endeavour to achieve the returns of the above index. This would be done by investing in all the stocks comprising the Nifty IT Index in the same weightage that they represent in the Nifty IT Index.
However, there is no assurance or guarantee that the investment objective of the scheme shall be achieved.
Min. Investment Rs 1,000 and in multiples of Re 1/- thereafter. Additional purchase Rs 1,000 and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load Nil
Fund Manager
  • Mr Kayzad Eghlim
  • Mr Nishit Patel
Benchmark Index Nifty IT Total Return Index
Issue Opens July 28, 2022 Issue Closes August 11, 2022
(Source: Scheme Information Document)
 

The investment strategy for ICICI Prudential Nifty IT Index Fund will be as follows:

ICICI Prudential Nifty IT Index Fund will predominantly invest in stocks of companies comprising the Nifty IT Index, subject to tracking errors. A very small portion (0-5% of the Net Assets) of the scheme may be kept liquid to meet the liquidity and expense requirements.

ICICI Prudential Nifty IT Index Fund: Should You Invest in Technology Stocks?
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The performance of the scheme may not be commensurate with the performance of the respective benchmark of the schemes on any given day or over any given period. Such variations are commonly referred to as tracking errors. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index.

The stocks comprising the Nifty IT Index are periodically reviewed by NSE Indices. A particular stock may be dropped or new securities may be included as a constituent of the index. In such an event, the Scheme will endeavour to reallocate its portfolio but the available investment/ disinvestment opportunities may not permit precise mirroring of the index immediately. The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of the scheme.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation for ICICI Prudential Nifty IT Index Fund

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 IT Index) 95 100 Very High
Money market instruments, including TREPs*and Units of debt mutual fund schemes# 0 5 Low to Medium
*or similar instruments as may be permitted by RBI/ SEBI, subject to requisite approvals from SEBI / RBI, if needed.
#Excluding subscription money in transit before deployment/payout.
(Source: Scheme Information Document)
 

About the benchmark

The NIFTY IT Index comprises of 10 companies listed on the National Stock Exchange (NSE) and captures the performance of the Indian IT companies.

The NIFTY IT index is computed using the free float market capitalization method with a base date of Jan 01, 1996, indexed to a base value of 1,000 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.

Here is the list of top 10 constituents by their weightage under the index as of July 29, 2022:

(Source: NSE Nifty IT Index)
 

Note, that the index will rebalance semi-annually based on six months' data.

Who will manage ICICI Prudential Nifty IT Index Fund?

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 degree. Before joining ICICI Pru AMC, he was associated with IDFC Investment Advisors Ltd. as 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, and ICICI Prudential Nifty Auto ETF.

 

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 250 Index Fund, ICICI Prudential Silver ETF Fund of Fund, and ICICI Prudential Nifty Auto ETF.

Fund Outlook - ICICI Prudential Nifty IT Index Fund

ICICI Prudential Nifty IT Index Fund aims to provide returns that closely correspond to the total returns as represented by the NIFTY IT Total Return Index, subject to tracking errors. The fortune of this scheme will be closely linked to how the Nifty IT Index performs.

The scheme offers investors an opportunity to benefit from innovation & development of futuristic technology by investing in emerging IT companies with quality management, global presence and high growth potential. The scheme aims to invest in the fastest-growing IT sector and investors have the opportunity to benefit from emerging technologies such as Cloud services, Fintech, E-commerce, Artificial Intelligence, Virtual Reality, and Blockchain technology.

However, do note that being an Index fund, ICICI Prudential Nifty IT Index Fund follows a passive approach and is available at lower costs and reduces the risk of active stock selection risk. This scheme is a sector-oriented Index Fund that will aim to invest only in the Information Technology sector, which creates a concentration risk. If the sector goes out of favour, the fund's performance will be negatively affected.

Additionally, the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the recent announcement made by RBI in its MPC meeting to hike policy rates again by 50 basis points to curb demand and control inflation may cause a significant risk to the economic growth and continue the prevailing high market volatility. These factors among others may weigh down the index and its top constituents which may impact the scheme's performance and the portfolio may face higher volatility in the near term.

Notably, sectoral funds are a high-risk, high-return investment proposition. Thus, ICICI Prudential Nifty IT Index Fund is suitable only for aggressive investors with high-risk tolerance, who better understand the IT sector and seek to benefit from its growth potential. More importantly, they should have an investment horizon of at least 5-7 years.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst



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