The index keeps the allocation of the constituent companies at nearly 2% each. According to the fund house, this enables broader sectoral representation, more diversification at a stock level and reduces the concentration risk
NEW DELHI: Aditya Birla Sun Life Mutual Fund has launched Nifty 50 Equal Weight Index Fund, an open-ended scheme tracking the Nifty 50 Equal-Weight Total Return Index. The new fund offer (NFO), which will close on 2 June, will be managed by Lovelish Solanki.
All constituents of Nifty 50 are part of the Nifty 50 Equal Weight index, however, unlike Nifty 50, which is based on market capitalization, the equal-weight index treats all of them equally irrespective of their relative market cap.
The index keeps the allocation of the constituent companies at nearly 2% each. According to the fund house, this enables broader sectoral representation, more diversification at a stock level and reduces the concentration risk.
“Equal allocation to the 50 large-cap companies can benefit from growth opportunities across the board rather than relying on the performance of few heavyweights. With a period of broad-based economic recovery on the anvil, high growth sectors like cement and cement products, pharma, metals and services, are better represented in the Nifty 50 Equal Weight Index. Over time, as markets and economy grow, we expect the equal weight (EW) Index to do better than Nifty 50. It has outperformed the Nifty 50 over short- and long-term periods," said A. Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC Ltd.
The scheme will have a regular and direct plan with a common portfolio and separate net asset values, and there will be no exit load. Moreover, the scheme will invest 95%-100% in equities and 0-5% in debt and money market instruments.
According to experts, the main benefit of an equal weight index is that it avoids concentration risk.
“Certain stocks are quite heavy in the Nifty 50 index in terms of allocation. However, an equal weight fund could also have its own cycle of outperformance during a non-polarized market and underperformance during a polarized market because we are not allowing the natural form of market capitalization to take place. Investors can have both Nifty 50 and Nifty 50 equal weight index funds in their portfolios to capture the outperformance in different market cycles," said Rushabh Desai, a Mumbai-based mutual fund distributor.
However, financial advisers are of the view that investors should stay away from NFOs.
“I will suggest avoiding all NFOs because there are already enough products available in the market be it in equity, debt or index for all types of investors. Unless there is a new theme, there is no reason for an investor to run behind an NFO," said Melvin Joseph, a Sebi-registered investment adviser and founder of Finvin Financial Planners.
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