Is ICICI Prudential Nifty50 Equal Weight Index Fund a Worthwhile Investment Proposition?

Sep 21, 2022

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In these prevailing volatile market conditions, the strategy of tracking a specific index that measures the performance of market capitalisations across sectors under one roof has drawn investors interest.

Investors looking for balanced diversification and anti-momentum approaches to play equity index funds could consider buying units of equal weight index funds tracking the Nifty 50 and Nifty 100 for their core equity portfolio. An Equal Weight Index follows an alternate index weighing methodology wherein the individual stocks are assigned equal weights regardless of their Free-float market capitalisation.

Smart beta products based on equal weight indices provide an anti-momentum, forced buy-low-sell-high investment strategy that reduces stock and sector concentration risks. Equal Weight Index funds enlighten the concept of diversification in the true sense since the risk is spread equally among all the constituents instead of a few large-cap stocks.

Investors seeking to build wealth over the long run without exposing their portfolios to excessive risk and volatility can consider passive investing in the Nifty50 Equal Weight Index. It includes the same high-quality equities as the blue-chip baskets but with the added benefit of equal weightage for all constituents. ICICI Prudential Mutual Fund has recently launched ICICI Prudential Nifty50 Equal Weight Index Fund. It is an open-ended Index scheme replicating the Nifty50 Equal Weight Index.

Commenting on the launch of this fund, Mr Chintan Haria, Head-Product Development & Strategy at ICICI Prudential AMC, said, "Since indices perform differently under variable market conditions, it is prudent to diversify across indices with different weightage methodology. The Nifty50 Equal Weight Index is less concentrated in the top 5 sectors as compared to the Nifty 50 Index, thus providing an excellent diversification opportunity. Also, there is no size bias as the index tries to reduce the impact of bigger companies on the index performance."

Table 1: Details of ICICI Prudential Nifty50 Equal Weight Index Fund

Type An open-ended Index scheme replicating the Nifty50 Equal Weight Index Category Index Fund
Investment Objective The objective of the scheme is to invest in companies whose securities are included in the Nifty50 Equal Weight Index and subject to tracking errors to endeavor to achieve the returns of the above index. This would be done by investing in all the stocks comprising the Nifty50 Equal Weight Index in the same weightage that they represent in Nifty50 Equal Weight Index. However, there is no assurance or guarantee that the investment objective of the scheme shall be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 5,000/- and in multiples of Re. 1 thereafter. Face Value Rs 10/- per unit
SIP/SWP/STP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution cum capital withdrawal option (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager - Mr Kayzad Eghlim
- Mr Nishit Patel
Benchmark Index Nifty50 Equal Weight TRI
Issue Opens September 14, 2022 Issue Closes September 28, 2022
(Source: Scheme Information Document)
 

The investment strategies for ICICI Prudential Nifty50 Equal Weight Index Fund will be as follows:

ICICI Prudential Nifty50 Equal Weight Index Fund aims to invest in stocks constituting the respective benchmark of the scheme, i.e., the Nifty50 Equal Weight Index, subject to tracking errors.

The underlying index employs a simple, smart beta strategy that tends to outperform when broader markets outperform. An equal weight index has empirically higher dividend yield as compared to a market capitalisation-weighted index as it allocates funds equally to its components.

Is ICICI Prudential Nifty50 Equal Weight Index Fund a Worthwhile Investment Proposition?
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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 Nifty50 Equal Weight Index is 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.

A very small portion (0-5% of the Net Assets) of the scheme may be kept liquid to meet the liquidity and expense requirements.

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

Table 2: Asset Allocation for ICICI Prudential Nifty50 Equal Weight 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 (Nifty50 Equal Weight Index) 95 100 Very High
Money Market instruments, including TREPs* and Units of debt 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 Nifty50 Equal Weight Index represents an alternative weighting index strategy to its market capitalisation-weighted parent index, the NIFTY 50. The index includes the same companies as its parent; however, weighted equally.

The Nifty50 Equal Weight Index aims to measure the performance of constituents forming part of the parent index, the NIFTY 50 Index, where each company in the index shall be assigned equal weights at the review time.

Here's the list of top 10 constituents by weightage and sector representation under the index as on August 30, 2022:

(Source: ICICI Prudential Nifty50 Equal Weight Index Fund PPT)
 

Note that the index is rebalanced on a quarterly basis and reconstituted on a semi-annual basis.

Who will manage ICICI Prudential Nifty50 Equal Weight 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 degrees. 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 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.

 

Fund Outlook - ICICI Prudential Nifty50 Equal Weight Index Fund

ICICI Prudential Nifty50 Equal Weight Index Fund aims to mirror the performance of the Nifty50 Equal Weight Index. The underlying index represents the top 50 largest companies spread across major sectors of the economy. The fortune of this scheme will be closely linked to how the Nifty50 Equal Weight Index performs.

The underlying index provides a complete representation of the Indian Large Cap universe. Though the Nifty 50 and Nifty50 Equal Weight index consists of the same companies, there is a difference in their weightage. The equal-weight index strategy simply allocates equal weight to all stocks instead of considering market capitalisation as the sole criteria for asset allocation.

The scheme exhibits smart-beta characteristics as the index intends to have no size bias. The Nifty50 Equal Weight Index is less concentrated in the top 5 sectors as compared to the Nifty 50 Index. This shows that the index is more diversified and helps in providing stability to the portfolio.

Although this scheme allows investors to gain exposure to multiple sectors within the same portfolio, it does not take away the high market risks. In addition, the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the rising policy rates to curb demand and control inflation may cause a significant risk to economic growth. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is unknown. These factors, among many others, could have a bearing on the scheme's performance, and the scheme may face high volatility in the near term.

Thus, you may consider investing in ICICI Prudential Nifty50 Equal Weight Index Fund only after it has built a reliable track record. Ensure you hold a high-risk appetite, a long investment horizon to sustain market volatility, and an investment objective that aligns with the fund.

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Warm Regards,
Mitali Dhoke
Research Analyst



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