Indiabulls Nifty50 Exchange Traded Fund: Should You Invest?
Apr 16, 2019

Author: Aditi Murkute

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(Image source: freepik.com)

Indiabulls mutual fund has launched its first passively managed fund, Indiabulls Nifty50 Exchange Traded Fund (IN50ETF)

This exchange-traded fund or ETF will comprise of stocks that replicates the composition of its benchmark, the Nifty 50 index. ETF provides an opportunity to invest across the entire market cap on a real-time basis at lower costs, hence globally they are popular.

The key benefit of an ETF over traditional open-ended index funds is liquidity and availability of real-time market price on the stock exchange. They can be bought and sold on the exchange at prices that are usually close to the indicative intra-day Net Asset Value (NAV) of the Scheme.

Plus, an ETF does not require active management. The manager of such a fund buys only the stocks of the underlying index and exits a certain stock only when the respective stock exits from the index to be replaced by another one.

About Nifty50 Index:

The Nifty 50 Index is the flagship index of the National Stock Exchange (NSE) comprising of 50 stocks. The Nifty 50 represents approximately about 65% of the total float-adjusted market capitalization and is a true reflection of the Indian stock market. It tracks the behaviour of a portfolio consisting primarily of blue-chip companies, the largest and most liquid Indian securities.

Indiabulls Nifty 50 ETF (IN50ETF) is suitable for those investors who wish to hold a diversified portfolio of well-known companies as represented by Nifty 50 Index and do not mind doing it vide a passively managed fund.

However, given that the Nifty 50 index is a purely equity-based index, only investors who have the stomach for high risk and an investment time horizon of at least 5 years, should consider IN50ETF.

[Read: Why Comparing Returns to Risk Is More Meaningful!]

Table 1: NFO Details

Type An Open-ended Scheme tracking Nifty 50 Index Category Domestic FOF
Investment Objective To provide returns that 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 5000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Entry Load Nil Exit Load Nil
Fund Manager Mr Veekesh Gandhi (Senior Fund Manager Equity) and Mr Malay Shah (Head Fixed Income) Benchmark Index Nifty 50 Index
Issue Opens April 08, 2019 Issue Closes April 22, 2019
(Source: Scheme Information Document)


How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of the Indiabulls Nifty 50 ETF will be as follows:

Table 2: Indiabulls Nifty 50 ETF's Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Minimum Maximum
Securities covered by Nifty 50 Index 95 100 High
Money Market Instruments*/Debt Securities including CBLO and Units of Liquid Mutual Fund 0 5 Low to Medium
*Money Market Instruments will include Commercial Papers, Commercial Bills, Treasury Bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time.
(Source: Scheme Information Document)


​What Investment Strategy will the Scheme follow?

As mentioned earlier Indiabulls NIFTY 50 Exchange Traded Fund will be managed passively with investments in stocks in a proportion that match as close as possible to the weights of the stocks in Nifty 50 Index.

The AMC uses a "passive" or indexing approach to try and achieve the Schemes' investment objective. Unlike other Funds, the Scheme does not try to "beat" the markets it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.

The AMC does not make any judgments about the investment merit of a particular stock or a particular industry segment or the underlying nor will it attempt to apply any economic, financial or market analysis.

Indexing eliminates active management risks with regard to over/ underperformance vis-a-vis a benchmark. Since the scheme is an exchange-traded fund, the scheme will only invest in the security constituting the underlying index. However, Due to corporate action in companies comprising of the index, the scheme may be allocated/allotted securities which are not part of the index.

The scheme may hold up to 5% of their total assets in stocks not included in the corresponding Underlying Index. For example, the AMC may invest in stocks not included in the relevant Underlying Index in order to reflect various corporate actions (such as mergers) and other changes in the relevant Underlying Index (such as reconstitutions, additions, deletions and these holdings will be in anticipation and in the direction of impending changes in the underlying index). These investments which fall outside the underlying index due to corporate action shall be rebalanced within a period of 7 business days.

Who will manage the Indiabulls Nifty 50 ETF?

The scheme will be managed by Mr Veekesh Gandhi (Senior Fund Manager Equity) and Mr Malay Shah (Head Fixed Income).

Mr Veekesh Gandhi has completed his M. Com from Mumbai University and has an MBA in Finance & Accounting from the University of Hartford in the USA to his credit. He is well versed with Indian and Global Macros and has more than 12 years of experience in the field of Banking and Capital markets. He was earlier associated with DSP Merrill Lynch Ltd, SSKI Securities and Motilal Oswal Securities, wherein he was responsible for tracking the BFSI sector and research on investment ideas. He is extensively research oriented and follows a top Down approach for Large Caps and Bottom-Up approach for Mid / Small Cap.

Some of the schemes which he manages at the fund house as the lead fund manager and co-fund manager include Indiabulls Blue Chip Fund, Indiabulls Arbitrage Fund, Indiabulls Value Discovery Fund, Indiabulls Savings Income Fund, Indiabulls Tax Savings Fund and Indiabulls Equity Hybrid Fund.

Mr Malay Shah is a Commerce Graduate (B. Com) with MMS degree in finance to his credit and has an experience of around 15 years in the field of finance, especially in Debt - Dealing and Fund Management.

Prior to joining Indiabulls Mutual Fund, he was working as the capacity of Head - Fixed Income with Peerless Funds Management Co. Ltd, managing all the debt Schemes.

Mr Malay is the dedicated fund manager for Debt Segment at the Indiabulls Mutual Fund. Some of the schemes which he manages include Indiabulls Arbitrage Fund, Indiabulls Value Discovery Fund, Indiabulls Savings Income Fund, Indiabulls Liquid Fund, Indiabulls Ultra Short-Term Fund, Indiabulls FMP Series V-1175 days, Indiabulls Savings Fund, Indiabulls Tax Savings Fund, Indiabulls Equity Hybrid Fund and Indiabulls Dynamic Bond Fund

What is the outlook for Indiabulls Nifty 50 ETF?

Indiabulls Nifty 50 ETF aims to capture long-term returns generated through passive management by replicating Nifty 50 index. Since it is a passively managed fund, the fortune of the fund hinges solely on the performance of the underlying ETF.

Table 3: Can they create wealth for you?

Company's name Weight (%)
HDFC Bank 10.67
Reliance Industries Ltd. 9.98
Housing Development Finance Corporation 6.94
Infosys Ltd. 6.04
ICICI Bank Ltd. 5.52
ITC Ltd. 5.45
Tata Consultancy Services Ltd. 4.5
Kotak Mahindra Bank Ltd. 3.81
Larsen & Toubro Ltd. 3.66
Axis Bank Ltd. 3.25
(Source: Nifty 50 Index fact sheet)

Although there may be good opportunities, in the long run, the risk also is very high as the Indiabulls Nifty 50 index is skewed heavily towards Equity. And currently the Indian equity market is likely to hit turbulence and the journey of wealth creation in the near-term would not be smooth as India is under the spell of Lok Sabha Elections that could move the market either way.

Hence it would be wise to give Indiabulls Nifty 50 ETF a miss and choose an actively managed fund as the risk involved is better mitigated. But you need to keep in mind your preferences especially your financial goal and risk appetite before investing.

[Read:  Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio]

This article first appeared on Certified Financial Guardian.


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