Can UTI S&P BSE Low Volatility Index Fund Help You Lower the Investment Risk?
Mitali Dhoke
Feb 17, 2022
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Volatility is the measure of the frequency and impact of price movement in a given market; for instance, investment in equities is considered to be highly volatile. Low-volatility investing aims on providing better risk-adjusted returns over time with less volatility; it is a relatively effective way to invest in equities.
Low-volatility stocks generally tend to hold up better when markets decline rapidly, investors may consider an exposure in stable companies with low volatility within the universe of S&P BSE LargeMidcap Index while investing in quality businesses that generate economic value.
The S&P BSE Low Volatility index consists of 30 companies from the S&P BSE LargeMidCap index with the lowest volatilities, as measured by standard deviation. Investors seeking to grow wealth in the long term in this volatile market scenario may consider investing this index that focuses on stocks with lowest volatilities.
UTI Mutual Fund has launched UTI S&P BSE Low Volatility Index Fund, an open-ended scheme replicating/tracking S&P BSE Low Volatility TRI.
Table 1: Details for UTI S&P BSE Low Volatility Index Fund
| Type |
An open-ended scheme replicating/tracking S&P BSE Low Volatility TRI. |
Category |
Index Fund |
| Investment Objective |
The investment objective of the scheme is to provide returns that, before expenses, closely 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. |
| Min. Investment |
Rs 5,000 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/SWP/STP |
Available |
|
|
| Plans |
|
Options |
|
| Entry Load |
Not Applicable |
Exit Load |
Nil |
| Fund Manager |
Mr. Sharwan Kumar Goyal |
Benchmark Index |
S&P BSE Low Volatility TRI |
| Issue Opens |
February 14, 2022 |
Issue Closes |
February 25, 2022 |
(Source: Scheme Information Documents)
The investment strategy for UTI S&P BSE Low Volatility Index Fund will be as follows:
UTI S&P BSE Low Volatility Index Fund is a low-cost index Fund which tracks the S&P BSE Low Volatility Index passively. The scheme endeavours to achieve returns equivalent to underlying index while minimizing tracking error.
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The scheme follows a smart-beta strategy: it will offer exposure to a diversified portfolio of relatively stable companies within the Large and Midcap segment by investing into the constituents of S&P BSE Low Volatility Index.
The investment strategy would revolve around reducing the tracking error to the least possible point through regular rebalancing of the portfolio, taking into account the change in weights of stocks in the Index as well as the incremental collections/redemptions in the Scheme. A part of the fund's portfolio may be invested in debt and money market instruments to meet the liquidity requirements.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for UTI S&P BSE Low Volatility Index Fund
| Instruments |
Indicative Allocation (% of net assets) |
Risk Profile |
| Minimum |
Maximum |
High/Medium/Low |
| Securities covered by S&P BSE Low Volatility Index |
95 |
100 |
Medium to High |
| Debt/ Money Market instruments including Triparty Repo and units of Liquid Mutual Fund |
0 |
5 |
Low |
(Source: Scheme Information Documents)
About the benchmark
The S&P BSE Low Volatility Index is designed to track the performance of the 30 companies in the S&P BSE LargeMidcap with the lowest volatilities, as measured by standard deviation.
The S&P BSE Low Volatility Index aims to track the performance of stocks with lower volatility on risk-adjusted basis over medium to long term periods by adopting a simple and transparent approach to volatility reduction.
Here's list of top 10 constituents by weightage and sector representation under the index as on January 31, 2022:
(Source: UTI S&P BSE Low Volatility Index Fund PPT)
Who will manage UTI S&P BSE Low Volatility Index Fund?
The designated fund manager for this scheme is Mr. Sharwan Kumar Goyal. He is a Chartered Financial Analyst (CFA), and hold degrees in B. Com and MMS. He began his career with UTI AMC in June 2006 and has 14 years of overall experience in Risk / Fund management.
At UTI AMC, Mr. Goyal currently manages UTI Nifty ETF, UTI Sensex ETF, UTI Nifty Next 50 ETF, UTI Nifty Index Fund, UTI Nifty Next 50 Index Fund, UTI S&P BSE Sensex Next 50 ETF, UTI Bank ETF, UTI Gold ETF, UTI Arbitrage Fund (Equity Portion), UTI Nifty200 Momentum 30 Index Fund, and UTI Multi Asset Fund (Equity/Gold Portion).
Fund Outlook - UTI S&P BSE Low Volatility Index Fund
UTI S&P BSE Low Volatility Index Fund aims to mirror the performance of the S&P BSE Low Volatility index, where the index construction is based on the "Low Volatility" within the universe of S&P BSE LargeMidcap Index. The scheme endeavours to hold a diversified portfolio of stable companies within the Large and Midcap segment, subject to tracking errors.
The S&P BSE Low Volatility index has higher exposure than S&P BSE LargeMidcap index to relatively stable sectors, such as Consumer Goods, Automobile, Pharma, among others. The underlying index has lower exposure to sectors with higher volatility, such as Financial Services, IT, and Oil and Gas. By investing only in companies that generate economic value, the fund will endeavour to generate wealth for investors in the medium to long term.
As an Index fund, it will follow a passive investing approach and reduce the risk of stock selection, but this could pose a concentration risk due to limited exposure to 30 lower volatility stocks. Although the scheme invests in "Low volatile" companies that generally have lesser impact of market volatility, it is still prone to high market risks related to the volatile nature of equities.
In addition, the looming threat of omicron variant plus the monetary policy action and stance amidst the inflationary pressures taken by the RBI may pose a risk to economic growth. The margin of safety appears to be narrow, and a clear direction for the equity market from the current elevated levels is unknown. These, among many other factors, may affect the scheme's performance, and the portfolio may face intensified volatility in the near term.
Thus, this scheme is suitable for investors looking to take exposure in relatively stable companies with low volatility within the universe of S&P BSE LargeMidcap Index. Ensure that 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
Jr. Research Analyst
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