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Asset management company, ICICI Prudential Mutual Fund, has floated an open-ended exchange-traded fund (ETF) that will track Nifty fast-moving consumer goods (FMCG) index.

ICICI Prudential AMC already has an actively managed FMCG fund and the new scheme will be passive and will follow the Nifty FMCG Index.

Passive investing is the most basic form of putting one’s money in mutual funds (MFs) and the purpose of this style of investment is to mirror the index and not beat it. Two common ways of investing passively in the equity market are to either opt for an index fund or an index exchange-traded fund (ETF). Both essentially mirror an index.

It’s only in the past five years that asset management companies (AMCs) have started focusing on passive funds.

ICICI Prudential MF’s new fund offer (NFO), which closes on 2 August 2021, will provide exposure to leading companies from the FMCG industry, which is the fourth largest sector of the Indian economy. Kayzad Eghlim and Nishit Patel will manage the scheme.

The Nifty FMCG Index comprises 15 stocks from the FMCG sector listed on the National Stock Exchange (NSE). The top constituents in terms of weightage of the index are Hindustan Unilever, ITC, Nestlé India, and Tata Consumer Products.

According to data from MFI Explorer, Nifty FMCG Index has outperformed Nifty 50 in eight out of the last 11 calendar years.

Nimesh Shah, managing director and chief executive officer, ICICI Prudential AMC said: “Higher inclination towards branded products, rising purchasing power owing to higher disposable income, increased digitization and growing demand from rural areas, are expected to fuel the FMCG sector growth in India. One can say that this sector approximately accounts for more than half of consumer spending."

The minimum investment during the NFO period is 1,000 and in multiples of 1, thereafter. There will be nil exit or entry load and the fund will be listed on BSE and NSE.

According to the fund house, FMCG ETF will look to benefit from increased spending power, changing lifestyles, increased competition and rise in rural and urban consumption.

Rushabh Desai, a Mumbai-based mutual fund distributor, who is bullish on the FMCG sector, says this sector is expected to boom as the population and consumption grows in the country.

According to Desai, as per historical data on a five-year rolling basis there have been times where Nifty FMCG TRI index has generated higher alpha compared with Nifty 50 and Nifty 500 total return indices.

“FMCG index will definitely give higher alpha to investors if they bet only at the right time. However, compared with Nifty 500, the consistency is lacking, as outperformance can be cyclical. If investors have a high risk appetite and want to go sectoral, then FMCG can be one of the sectors," he said

However, Desai warned that the FMCG sector at this point is extremely overvalued and overall sector themes require precise entry and exit strategies to work.

“At the time point of time, the valuations in the FMCG space are expensive thus I do not recommend investors to venture in it at this point in time. Investors should invest strictly during correction periods and when the sector is undervalued. Only super high-risk investors and high net worth investors who can time the market can bet on this fund," he said.

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