UTI Nifty 200 Quality 30 Index Fund Should You Invest
Sep 03, 2024
UTI Mutual Fund has launched two index funds: the UTI Nifty Private Bank Index Fund (helping you to gain exposure to private banks that have contributed significantly to India’s growth story) and the UTI Nifty200 Quality 30 Index Fund (helping you gain exposure to quality companies with durable business models, which results in sustained growth).
In this piece, we will look at the characteristics of the latter, i.e. the UTI Nifty200 Quality 30 Index Fund -- an open-ended scheme replicating/ tracking Nifty200 Quality 30 TRI (Total Return Index).
This Scheme during the NFO is open for subscription from September 2, 2024, to September 16, 2024. Thereafter the scheme re-opens for subscription on September 24, 2024.
You see, ‘quality investing’ focuses on financially healthy companies with superior Return on Equity (ROE) and healthy balance sheets (low debt-to-equity).
Graph 1A and 1B: Superior Return and Healthy Balance Sheet
(Source: UTI Mutual Fund’s Investor Presentation)
Moreover, lower variability of the Earnings Per Share (EPS) growth matters for resilience during drawdowns.
Table 1: Lower Variability in Earnings Growth
(Source: UTI Mutual Fund’s Investor Presentation)
It is the aforementioned aspects that usually result in resilient performance even during adverse economic situations and offer consistency in returns. In other words, ‘quality investing’ helps to arrest the downside risk in times of financial crisis, pandemics, geopolitical tensions, etc.
Graph 2: Resilience During Drawdowns
(Source: UTI Mutual Fund’s Investor Presentation)
Around 95% to 100% of UTI Nifty 200 Quality 30 Index Fund will be invested in equity and equity-related securities of companies constituting the Nifty200 Quality 30 Index, including derivatives.
The Scheme may take exposure to equity derivatives of constituents of the underlying index for a short duration when securities of the index are unavailable, insufficient or for rebalancing at the time of change in the index or in case of corporate actions or for hedging purposes, as permitted subject to rebalancing within 7 days or as specified by SEBI from time to time. The exposure of the Scheme in derivative instruments shall be up to 20% of the net assets of the Scheme.
Up to 5% of the Scheme’s total assets may be invested in debt/money market instruments, including Triparty Repo on Government Securities (G-secs) or Treasury bill (T-bill) and units of liquid mutual fund.
The Scheme may engage in short selling, borrowing and lending of securities by adhering to rules and limits.
However, the Scheme will not invest in the following securities:
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Equity derivatives for non-hedging purposes
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Securitized debt
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Overseas Securities
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REITs and InVITS
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Debt Instruments with Special Features (AT1 and AT2 Bonds)
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Debt instruments with SO/ CE rating
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Repo/ Reverse repo transactions in corporate debt securities
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Credit default Swap transactions
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Covered call options
What Is the Investment Objective?
The Investment objective of the Scheme is to provide returns that, before expenses, correspond to the total return 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.
What Is the Investment Strategy?
The Scheme is a low-cost index fund which tracks the Nifty200 Quality 30 Index passively. The scheme endeavours to achieve a return equivalent to the underlying index while minimizing tracking error.
UTI Nifty200 Quality 30 Index Fund will be managed passively with investments in stocks comprising the Underlying Index subject to tracking error.
The investment strategy would revolve around reducing the tracking error to the least possible 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.
The investment in debt and money market instruments will be to meet liquidity requirements. Since the Scheme is an index fund, it will only invest in securities constituting the underlying index.
As part of the fund management process, the Scheme may use derivative instruments such as index futures and options, or any other derivative instruments that are permissible or may be permissible in future under applicable regulations. The Scheme intends to use derivatives for the purpose of hedging and portfolio balancing.
The performance of UTI Nifty200 Quality 30 Index Fund will be benchmarked against Nifty200 Quality 30 TRI, as the scheme tracks the Nifty200 Quality 30 Index passively.
About the Nifty200 Quality 30 Index
The Nifty200 Quality 30 Index, which was launched on April 17, 2018 (with the base date as April 1, 2005) aims to cover companies which have durable business models resulting in sustained growth. This index consists of 30 companies selected from the Nifty 200 index, based on Return on Equity, Debt-to-equity ratio and Variability in EPS in the previous five years.
The weight of each stock in the index is based on the combination of the stock’s quality score and its free float market capitalization. And the Index is rebalanced semi-annually.
Table 2: Top Constituents of the Nifty200 Quality 30 Index
(Source: NSE Indexogram Factsheet as of August 2024)
Since its inception, the Nifty200 Quality 30 Index has delivered a price return of 17.5% and a total return (which includes dividends) of 19.5% (as of August 30, 2024).
Graph 3: Long-term Performance of Nifty200 Quality 30 Index
(Source: NSE Indexogram Factsheet as of August 2024)
Over the last one year, the Nifty200 Quality 30 Index has clocked an impressive absolute total return of 45.4% as of August 31, 2024, rewarding investors well.
Here’s what Mr Sharwan Kumar Goyal, Head – Passive, Arbitrage & Quant Strategies, UTI Asset Management Company (AMC) said about the fund launch:
“UTI Nifty200 Quality 30 Index Fund is designed to provide investors with a simple and yet effective way to access a portfolio of 30 high-quality companies within largecap and midcap universe. This fund aims to closely mirror the performance of the Nifty200 Quality 30 Index, providing a cost-effective option for those looking to diversify their investments with a focus on generating better risk-adjusted returns as compared to broad market indices.”
Who Will Manage UTI Nifty200 Quality 30 Index Fund?
Mr Sharwan Kumar Goyal is the dedicated Fund Manager of the UTI Nifty200 Quality 30 Index Fund.
He began his career with UTI AMC in June 2006 and has 18 years of overall experience in Risk / Fund management. Sharwan holds a master’s degree in management studies (MMS) and is a Chartered Financial Analyst. He’s managing several other index funds and Exchange Traded Funds (ETFs) at the fund house.
Mr. Ayush Jain will assist Sharwan in managing the UTI Nifty200 Quality 30 Index Fund.
Ayush is a Chartered Accountant (CA) holding a charter from the Institute of Chartered Accountants of India and a commerce graduate (B.COM). He began his career with UTI AMC Ltd in April 2018 and has over 6 years of experience in Equity Fund Management, Equity Research, Equity Portfolio Analysis & Portfolio Management Services. Ayush assists in Sharawan managing various index funds and ETFs at UTI AMC.
How much is the Minimum Investment in UTI Nifty200 Quality 30 Index Fund?
The minimum initial investment amount is Rs 5,000/- and in multiples of Re1/- thereafter.
The subsequent minimum investment amount under a folio is Rs 1,000/- and in multiples of Re.1/- thereafter with no upper limit.
As regards the Systematic Investment Plan (SIP), the minimum SIP amount for Daily, Weekly and Monthly SIP is Rs 500/- and in multiples of Re1/- thereafter. The minimum SIP amount for Quarterly SIP is Rs 1,500/- and in multiples of Re1/- thereafter.
Who Should Consider Investing in UTI Nifty200 Quality 30 Index Fund?
This scheme is a worthy choice who give quality investing a priority and want exposure to a basket of 30 companies with higher profitability, lower leverage and more stable earnings.
The returns would commensurate with the performance of the Nifty200 Quality 30 Index over the long term, subject to tracking error.
Currently, the Price-to-Equity (P/E) and Price-to-Book Value (P/BV) ratio of the Nifty200 Quality 30 Index is at around 37x and 12x, respectively – which cannot be considered reasonable. One ought to have a very high-risk appetite and investment horizon of at least 3 to 5 years to invest in the UTI Nifty200 Quality 30 Index Fund.
To know more about the UTI Nifty200 Quality 30 Index Fund, read the Scheme Information Document and Key Information Memorandum.
Happy Investing!