Kotak Mutual Fund Launches Nifty 50 Index Fund NFO – Review
Kotak Mutual Fund has launched Nifty 50 Index Fund NFO (New Fund Offer). As the name indicates, Kotak Nifty 50 Index Fund would invest in the stocks that are part of Nifty 50 Index. This index has delivered 11% annualized returns in the last 25 years since inception. While investors prefer to invest in index funds, these should be considered as long-term investments. Should you invest in Kotak Nifty 50 Index Fund NFO? What are the risk factors in this mutual fund?
Kotak Nifty 50 Index Fund NFO issue details
This is an open-ended index fund replicating / tracking Nifty 50 Index.
Kotak Nifty 50 Index Fund NFO would open for subscription on Monday, May 31, 2021 and closes on Monday, June 14,2021. It reopens after 5 working days for further subscription.
Here are the NFO issue details.
|Scheme reopens for continuous purchase/sale||28-Jun-21|
|Minimum Lumpsum||Rs 100|
|Minimum SIP||Rs 100 for 6 months|
|NAV of the fund||Rs 10 during NFO period|
|Risk||Very High Risk|
|Max expense Ratio (TER)||1.00%|
|Benchmark||Nifty 50 Index TRI|
What is the investment objective of Kotak Nifty 50 Index Fund?
The investment objective of the scheme is to replicate the composition of the Nifty 50 and to generate returns that are commensurate with the performance of the NIFTY 50 Index, subject to tracking errors.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this index fund?
Here is how the index fund would invest:
|Type of instruments||Min %||Max %||Risk Profile|
|Equity and Equity related securities covered by the Nifty 50 including Derivatives including derivatives Weight Index||95%||100%||Medium to High|
|Debt and Money Market instruments||0%||5%||Low to Medium|
What does Nifty 50 Index contain?
The NIFTY 50 index is a well-diversified 50 companies index reflecting overall market conditions. NIFTY 50 Index is computed using free float market capitalization method.
NIFTY 50 can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured Products
Here is the list and their weightage in this index by sector and top constituents as of now.
Why to invest in Kotak Nifty 50 Index Fund NFO?
Here are a few reasons to invest in such index funds.
1) This fund invests in Nifty 50 index that has diversified portfolio of stocks. This would help for portfolio diversification.
2) This index has provided stable returns in the last 5 years and since inception. If you observe, this index gave 13% annualized returns in the last 5 years and 11% annualized returns since inception.
3) You might have doubt whether your large cap fund or flexicap fund would perform well or not in the long term. In case of Kotak Nifty 50 Index fund, there are greater chances that such funds would perform well in the long run based on past performance of the underlying index.
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 index fund invests in 50 stocks which is like investing in direct equity (as it invests in specific stocks). Any investment in direct equity is considered as high risk.
2) It invests up to 5% in debt instruments. There is interest rate risk, credit risk, liquidity risk etc., with corporate debt instruments.
3) The returns are limited in this index fund. If you observe, last 5 years annualized returns are at 13%. However, this is majorly due to current bull run in 2020/2021 which you might not see frequently. Otherwise, the returns would have been lower at say 10% to 11%.
4) Investors should read the SID / KIM / prospectus before investing in such mutual funds.
How is the Performance of Nifty 50 Index?
Now, let us look at the performance of the underlying index where this fund would be going to invest. Total returns include dividends, interest and rights received by the shareholders (if any).
How is the Performance of existing Nifty 50 Index Mutual Funds?
While the fund would replicate the index stocks, the returns could also vary due to tracking error, investments in derivatives, management fees (expense ratio) and to the extent of investments made in the debt portion of the fund. Returns for 5 years and 10 years are annualised returns
|Fund Name||1 Years||5 Years||10 Years|
|HDFC Index Fund – Nifty 50 Plan||70.4%||14.5%||11.6%|
|L&T NIFTY 50 Index Fund||69.4%||–||–|
|DSP NIFTY 50 Index Fund||70.0%||–||–|
|Motilal Oswal Nifty 50 Index Fund||69.5%||–||–|
Should you invest in Kotak Nifty 50 Index Fund NFO?
Kotak Nifty 50 Index Fund invests in Nifty 50 index stocks. This index generated stable returns and delivered 11% annualized return since inception and 13% annualized returns in last 5 years. High risk investors who want to invest for 8-10 years can invest in such index funds. Moderate risk takers, low risk investors and short-term investors can stay away from such investments.
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