DSP Mutual Fund has launched the NFO of DSP Nifty 50 equal-weight ETF on October 18, 2021, in the smart beta-index-fund space with an objective of seeking to provide returns that, before expenses, closely correspond to the total return of the underlying index, subject to tracking errors. DSP Nifty 50 equal-weight ETF is India’s first ETF based on equal weighted strategy and as the name suggests, it is an equal weighted fund meaning it is a fund which invests an equal amount of money in the stock of each company that makes up the index. DSP Nifty 50 equal-weight ETF will track the performance of the Nifty 50 Equal Weight TRI benchmark.
The stocks in nifty have different weightages based on the market cap of the companies for eg. Reliance Industries Ltd has 10.7% weightage which is approximately equal to weight of bottom 17 stocks hence this fund aims to reduce such concentration risk, prevent bias and also increase diversification, by giving each company 2% allocation regardless of its market cap or performance. The fund also aims for quarterly realignment of stock weightage and book profits in outperformers and buys more of underperformers.
Nifty 50 Equal Weight Index – Historical Performance
As we can see from the above graph the Nifty 50 equal weight TRI has outperformed the Nifty 50 in 12 times in the last 20 years from June 2000 to June 2020 and has an average CAGR of 19.85% to 17.22% of Nifty 50.
|Nifty 50 Equal Weight Index||21.01||3.84||1.94|
|Nifty 50 Index||26.98||4.41||1.17|
Nifty 50 Equal Weight Index has lower P/E and P/B with higher Dividend yield compared to Nifty 50 but Investors should keep in mind that past performance may or may not be sustained in the future.
Also read : Market Outlook – November 2021
Firstly, let’s look at the advantages of investing in this fund.
- Diversified portfolio at relatively low cost.
- Invests equally in each stock without any bias since no fund manager bias is involved.
- Relatively lower expense ratio than active large-cap funds.
- Affordable since the minimum investment value is Rs. 5000.
- Since the allocation is 2% for every stock, the returns might decrease if some relatively lower cap companies underperform.
- The fund aims to book profit quarterly from high performing companies and buy more underperforming stocks so if the underperforming companies continue to further underperform, it will negatively affect the funds return.
The fund invests only in Nifty 50 companies stocks in equal weightages hence the risk associated with it is relatively lower because of good diversification and lower concentration risk. The Nifty has given return of CAGR 12.3% since its inception. But this smart Beta strategy intends to outperforms Nifty. With the increasing market participation by young investors wanting to get into investing in stocks via ETF and increasing liquidity of ETFs, this fund looks like a good opportunity for medium to long term investors who seek exposure to large cap/Index funds.
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in now.