Nippon India Passive Flexicap FoF: Aiming to Benefit from Market Wisdom

Dec 21, 2020

When it comes to performance across market caps, we see that it differs significantly over a period. Small and mid cap stocks underperformed the large cap stocks in the past two calendar years, but turned out to be outperformers in the current year.

Investors following a multicap strategy benefit from the stability of the large caps and high growth potential of mid and small caps. Thus, staying invested across market caps can potentially generate better returns in the long run.

While market mood swings are difficult to predict, Fund managers often have the ability to anticipate and capture the market trend. Notably, SEBI recently introduced a new category under diversified equity funds viz. Flexicap Fund that can invest dynamically across market caps.

Nippon India Passive Flexicap FoF, the latest fund from Nippon India Mutual Fund aims to capture Market Wisdom (ETF/Index Funds) as well as the collective wisdom of Fund Managers (industry category allocation towards various market caps). This can help eliminate an individual Fund Manager's biases towards a particular sector/stock/ market cap allocation.

Being a fund of fund, Nippon India Passive Flexicap FoF is mandated to invest minimum 95% of its assets in the underlying fund, i.e. units of Nippon ETFs/Index Funds. The performance benchmark index of the fund is Nifty 500Total Returns Index.

Nippon India Passive Flexicap FoF is an open-ended fund of fund scheme that aims to generate returns relative to markets with relatively lower volatility by investing predominantly in units of ETFs/Index Funds of Nippon India Mutual Fund. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.

Table 1: Details of Nippon India Passive Flexicap FoF

Type An Open ended Fund of Funds Scheme investing in units of ETFs/Index Funds of Nippon India Mutual Fund Category Fund of Fund
Investment Objective To generate long-term capital growth by investing in units of ETFs/Index Funds of Nippon India Mutual Fund. However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10/- per unit
Plans
  • Direct
  • Regular
Options
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Mehul Dama Benchmark Index Nifty 500 (Total Returns Index)
Issue Opens: December 10, 2020 Issue Closes: December 24, 2020
(Source: Scheme Information Document)


Investment strategy - Nippon India Passive Flexicap FoF

Nippon India Passive Flexicap FoF's investment strategy will be largely passive in nature. The fund will predominantly invest in units of ETFs/Index Funds of Nippon India Mutual Fund such as, Large cap ETF/Index Fund, Mid cap ETF/Index Fund, Small cap ETF/Index Fund.

Investments in these schemes will be based on the average allocation of all active Multicap Funds in the industry into large, mid, and small cap stocks as provided by CRISIL every month. Accordingly, the portfolio will be rebalanced every month.

The Scheme will invest in any (but not exclusively) of following category of Schemes:

  1. Exchange Traded Funds (ETFs):

    • Any ETFs of Nippon India Mutual Fund
  2. Index Funds:

    • Any Index Fund/(s) of Nippon India Mutual Fund

The fund will invest in the units of these schemes either directly through Nippon Life India Asset Management Limited (NAM India) in creation unit (block) size or through the secondary market via stock exchange route.

Under normal circumstances,the fund's asset allocation pattern will be as under:

Table 2: Asset Allocation of Nippon India Passive Flexicap FoF

Instruments Indicative Allocation
(% of assets)
Risk Profile
Minimum Maximum High/Medium/Low
Units of Nippon India ETFs/Index Funds of Nippon India Mutual Fund 95 100 Medium to High
Debt and money market instruments* 0 5 Low to Medium
*Including units of Liquid Schemes launched by SEBI registered Mutual Funds or schemes that predominantly invest in money market instruments
(Source: Scheme Information Document)


​Who will manage Nippon India Passive Flexicap FoF?

Nippon India Passive Flexicap FoF will be managed by Mr Mehul Dama.

Mr Mehul Dama is an ETF Manager at Nippon India Mutual Fund and is also responsible for ETF dealing desk. He is a commerce graduate from Mumbai University and a qualified Chartered Accountant. He has over 14 years of experience across financial services industry and Big Four Accounting Firms with Asset Management industry experience of over 8 years. His previous stint includes Goldman Sachs Asset Management (India) Private Limited as Vice President - Controller, and Benchmark Asset Management Company Private Limited as Assistant Vice President - Operations and Lovelock & Lewes (member firm of PricewaterhouseCoopers) as Assistant Manager in assurance division.

Mr Dama currently manages Nippon India ETF PSU Bank BeES, Nippon India ETF Gold BeES, Nippon India ETF Infra BeES, Nippon India ETF Shariah BeES, Nippon India Index Fund - Nifty Plan, Nippon India Index Fund - Sensex Plan, Nippon India ETF Dividend Opportunities, Nippon India Nifty Smallcap 250 Index Fund, among other ETF Funds.

Fund outlook - Nippon India Passive Flexicap FoF

Most multi cap oriented funds currently carry high allocation to large with some allocation to mid and small. However, as growth aspects of mid and small cap stocks improve, multi cap strategy funds may increase allocation in the segment, though it may continue to be large-cap biased.

Though mid and small caps have high growth potential, they are prone to higher volatility which can increase the risk to the portfolio. That said, the presence of large caps in the portfolio would offset some of the volatility.

Do note that it may not be possible to achieve optimum diversification from a single fund. If the fund manager is not quick to capture the market trend, deriving maximum returns could become difficult.

This makes Nippon India Passive Flexicap FoF suitable for investors having a high-risk appetite and an investment horizon of at least 5 years.

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Warm Regards,
Divya Grover
Research Analyst

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