SBI – ETF Quality: Can It Enhance The Quality Of Your Portfolio?
Nov 30, 2018

Author: Aditi Murkute

SBI Mutual Fund has launched a passively managed fund, SBI–ETF Quality an open-ended scheme that will benchmark its performance against the Nifty 200 Quality 30 Index.

SBI-ETF Quality Fund, as per the mandate, will allocate 95% of its assets in securities covered by the Nifty 200 Quality 30 Index.  It aims to generate returns by investing in securities that are a part of Nifty 200 Quality 30 Index for a longer time horizon.

About NIFTY 200 Quality 30 Index

The NIFTY 200 Quality 30 Index (launched in April 2018) includes top 30 companies from its parent NIFTY 200 index, selected based on their ‘quality’ scores. The quality score for each company is determined based on return on equity (ROE), financial leverage (Debt/Equity Ratio) and earning (EPS) growth variability analysed during the previous 5 years.

The index series has a base date of April 01, 2005 and a base value of 1,000.

  • Stocks from NIFTY 200 index at the time of review are eligible for inclusion in the index.

  • 30 companies with higher profitability, lower leverage and more stable earnings are selected to be part of the index.

  • The weight of each stock in the index is based on the combination of stock’s quality score and its free float market capitalization.

  • The index is rebalanced semi-annually.

Now given that the Nifty 30 Quality index is a purely equity-based index, there is extremely high concentration risk involved.

Hence SBI-ETF Quality fund is suitable for investors having the stomach to assume high risk and ready to stay invested for longer durations of at least 5 years.

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

Table1: NFO Details

Type An open-ended scheme tracking Nifty 200 Quality 30 index Category Domestic ETF
Investment Objective The investment objective of the scheme is to provide returns that closely correspond to the total returns of the securities as represented by the underlying index, subject to tracking error. However, thereis 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 Face Value Rs 10 per unit
Entry Load Nil Exit Load Nil
Fund Manager Mr Raviprakash Sharma Benchmark Index Nifty 200 Quality 30 Index
Issue Opens November 26, 2018 Issue Closes: December 03, 2018
Units allotment In a dematerialised form only, as the Scheme will be listed on NSE or any other exchange as decided by the AMC
(Source: Scheme Information Document)

How will SBI–ETF Quality allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of the SBI-ETF Quality Fund will be as follows:

Table 2: SBI-ETF Quality Fund's Asset Allocation

Instruments Indicative allocations
(% of Total Assets)
Risk Profile
Minimum Maximum
Securities covered by Nifty 200 Quality 30 Index 95 100 Medium to High
Money Market instruments* and units of a liquid mutual fund 0 5 Low
*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)

Further, the Scheme Information Document also states that the Scheme may invest in derivatives at the time of portfolio rebalancing. These investments, however, would be for a short period of time.

The notional exposure of the Scheme in Derivative instruments shall be restricted to 5% of the net assets of the Scheme. The combined exposure of money market securities and gross notional exposure of derivatives instruments shall not exceed 100% of the net assets of the Scheme.

Note that the:

  • The scheme will not make any investment in ADR/ GDR/ Foreign Securities/ Securitised Debt.

  • The Scheme shall not invest in repo in corporate debt.

  • The Scheme shall not engage in short selling.

  • The Scheme shall not invest in unrated debt instruments.

  • The Scheme may engage in stock lending and borrowing in accordance with SEBI (Mutual Funds) Regulations.

The Scheme, in general, will hold all the securities that comprise of the underlying index (i.e. The NIFTY 200 Quality 30 Index) in the same proportion as the index. The expectation is that, over a period, the tracking error of the Scheme relative to the performance of the underlying index will be relatively low. The Investment Manager would monitor the tracking error of the Scheme on an on-going basis and would seek to minimize tracking error to the maximum extent possible. However, there is no assurance or guarantee the Scheme will achieve any particular level of tracking error relative to the performance of the underlying index.

What will be the investment strategy?

stragicy
(Image source: freepik.com)

The Scheme will track Nifty 200 Quality 30 index and will use a “passive” or indexing approach in the endeavour to achieve the Scheme’s investment objective.

Unlike other funds, SBI–ETF Quality will not try to “beat” the market it tracks and does not seek temporary defensive positions when market decline or appear overvalued. The fund does not make any judgments about the investment merit of a particular security nor will it attempt to apply any economic, financial or market analysis.

Indexing eliminates active management risks regarding over/ underperformance vis-à-vis a benchmark. Since the scheme is an exchange-traded fund, the scheme will only invest in the securities constituting the underlying index.

However, due to changes in the underlying index (due to reconstitution, addition, deletion, etc.) SBI–ETF Quality may temporarily hold securities which are not part of the index. The fund manager’s endeavour would be to rebalance the portfolio in order to mirror the index; but, there may be a short period where the constituents of the portfolio may differ from that of the underlying index. These investments which fall outside the underlying index as mentioned above shall be rebalanced within a period of 30 days.

Note, to form a part of NIFTY200 Quality 30 Index, stocks should qualify the following eligibility criteria:

  • Stocks should form part of NIFTY 200 index at the time of review

  • Constituents should have a minimum listing history of 1 year

  • The stock should be available for trading in the derivative segment (F&O)

Who will manage the SBI-ETF Quality Fund?

The Scheme will be managed by Mr Raviprakash Sharma. He is a commerce graduate (B. Com), a Chartered Accountant, and is a CFA Charter Holder (CFA Institute, USA) with a total work experience of around 18 years in Indian capital markets in various capacities including Portfolio Management and Dealing in equity shares on behalf of clients.

For 4 years he worked as a Manager of Fixed Income Group at Birla Sun Life Securities Ltd, later for a year he joined Times Investors Services Pvt. Ltd., Mumbai as AVP of Fixed Income Group.

Thereafter, for a year-and-a-half was an AVP of Non-Discretionary PMS at Kotak Securities Ltd, followed by a short tenure as a financial advisor with Citigroup Wealth Advisors India Pvt. Ltd.

Finally, before joining the SBI Mutual Fund he worked as a Sr. Manager of Portfolio Management Services with HDFC Asset Management Co. Ltd for four years.

Presently, he is the Fund Manager of SBI Nifty Index Fund, SBI - ETF Gold, SBI-ETF SENSEX, SBI-ETF Nifty Bank, SBI-ETF BSE 100, SBI-ETF Nifty Next 50, SBI–ETF SENSEX Next 50, and SBI ETF Nifty 50.

The Outlook of the SBI-ETF Quality Fund:

As mentioned earlier, SBI-ETF Quality Fund is aligned to Nifty 200 Quality 30 index and follows a passive investment approach. The fund manager will not perform any analysis it will only try to mirror the Nifty 200 Quality 30 index. Hence the performance of the fund solely and closely linked to how the NIFTY200 Quality 30 index performs.

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

Editor’s note:

What if we tell you that certain unusual and lesser-known funds can generate big gains for you, the investor?

Yes, you can.

Believe it or not, unusual and lesser-known funds can generate big gains for you, the investor.

But any small sized fund will not do. After all, you do not want to pick lesser-known funds that have delivered a one-off performance.

If you are risk-taker and do not have the time and skill to do your own research, here’s how you can add some hidden gems to your mutual fund portfolio before the crowd discovers them. 

Want to know which are these ‘Undiscovered’ funds? Click here to read more…
 

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014
 

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited ;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest

  1. ‘subject company’ is a company on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

 Disclosure with regard to receipt of Compensation

  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

 General disclosure

  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Definitions of Terms Used

  1. Buy recommendation: This means that the subscriber could consider buying the concerned fund keeping in mind the tenure and objective of the recommendation service.

  2. Hold recommendation: This means that the subscriber could consider holding on to the fund until further update. However, additional purchase via ongoing SIP can be considered.

  3. Sell recommendation: This means that the subscriber could consider selling the fund keeping in mind the objective of the recommendation service.

Click here to read PersonalFN’s Mutual Fund Rating Methodology

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 16 Jolly Maker Chambers II, Nariman Point, Mumbai 400 021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222

SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013



Add Comments

Comments
Subbaraju2266@gmail.com
Dec 02, 2018

Pls requested sir I am from India at taminadu Chennai my name registered by reader's digest indiatoday award winner 2017 ETYL Panchayti ward member educational knowledge people matters higher educational knowledge communication skills My first lounage Telugu second lounage English wrokshop training online verification thanks
 1