Nippon India ETF NIFTY IT – Should you invest or avoid IT sector now?
Nippon India ETF NIFTY IT Review
Nippon India mutual funds is coming up with a NIFTY IT ETF that would open for subscription on 24 June, 2020. During Covid-19 and when IT sector is taking a huge beating with project closures and employee layoffs, would this IT ETF would attract investors. What are the issue details of the Nippon India ETF NIFTY IT? Should you invest in the Nippon India ETF NIFTY IT? Since this is like sector fund, can we invest in this ETF for short term?
What are Exchange Traded Funds (ETFs)?
Wikipedia defines ETF as “an exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur”.
Issue details of Nippon India ETF NIFTY IT
This is an open-ended scheme replicating / tracking NIFTY IT Index.
This scheme would open for subscription on 24 June, 2020.
This scheme would close for subscription on 25 June, 2020.
Since this is an open ended scheme, it would again open for subscription after the initial ETF period. It would reopen from 9 July, 2020 for fresh subscriptions.
Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off.
The NAV of the ETF is Rs 10 per unit during the initial subscription.
There is no entry load to invest in this ETF.
There is no exit load in this ETF.
This scheme is classified as high risk scheme.
Scheme total expense ratio (TER) is estimated at 1%.
What is the investment objective of Nippon India ETF NIFTY IT?
The investment objective of the scheme is to provide investment returns closely corresponding to the total returns of the securities as represented by the NIFTY IT Index before expenses, subject to tracking errors.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
Who is eligible to invest in this scheme?
All residential Indians, mutual fund schemes, HUFs, companies and NRIs can invest in this scheme.
What is the benchmark for this scheme?
The benchmark for this scheme is NIFTY IT Index.
What is the allocation pattern in this ETF scheme?
This ETF investment pattern is as follows:
1) It invests 95% to 100% in securities constituting NIFTY IT Index. The risk profile in this segment is medium to high.
2) It would invest 0% to 5% in money market instruments including Tri-party Repo, cash or liquid schemes. The risk profile in this segment is low to medium.
What does NIFTY IT Index contain?
The index is designed to reflect the behavior of companies engaged in activities such as IT infrastructure, IT education and software training, networking infrastructure, software development, hardware, IT support and maintenance etc. The base date of the index is January 1, 1996. Currently it constitutes 10 companies. Here is the list and their current stock prices as on 21 June, 2020.
Why to invest in the Nippon India ETF NIFTY IT?
Here are a few reasons to invest in such ETF schemes.
1) The information technology sector is a consistent performer in the last few decades. This is expected to continue in future too.
2) Since this is an ETF, you can buy or sell such ETFs on NSE during market hours. Hence this is a liquid investment.
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) This ETF focuses on single sector and this is like sector mutual fund. Investing in single sector is HIGH RISK.
2) There are several companies in the NIFTY IT Index that may face severe revenue and margin pressure due to ramp down of projects during covid-19 crisis. We are already seeing this now and it is a tip of the iceberg. We might see a major downfall in the coming quarters.
4) You can refer complete risk factors of investing in this particular scheme in SID / KIM / NFO prospectus.
How is the Performance of NIFTY IT Index?
Now, let us look at the performance of the NIFTY IT Index. This index gave 28% returns in the last 5 years compared to NIFTY 50 returns of 20%. Here is the last 10 years chart of the NAV value movement of the NIFTY IT Index.
Should you invest in the Nippon India ETF NIFTY IT?
The Nippon India ETF NIFTY IT invests in underlying stocks of the NIFTY IT index. This invests in a single sector, i.e. IT sector, hence it is high risk. If you are a high risk investor and willing to invest in medium to long term, you can invest in this scheme. Short term investors and low risk investors should avoid this scheme.
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Nippon India ETF NIFTY IT Review