HDFC NIFTY50 Equal Weight Index Fund - Review and Analysis

HDFC NIFTY50 Equal Weight Index Fund – Review

HDFC NIFTY50 Equal Weight Index Fund - Review and AnalysisHDFC NIFTY50 Equal Weight Index Fund – NFO Review

HDFC MF has launched Nifty50 Equal Weight Index fund (NFO) that opens for subscription on 4th August 2021. As the fund name indicates, this fund would invest in the stocks that are part of Nifty50 Equal Weight Index. This index has delivered 14% annualized returns in the last 25 years since inception. Should you invest in HDFC NIFTY50 Equal Weight Index Fund NFO? What are the risk factors in this mutual fund?

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HDFC NIFTY50 Equal Weight Index Fund – NFO issue details

This is an open-ended index mutual fund replicating / tracking Nifty50 Equal Weight Index.

HDFC NIFTY50 Equal Weight Index Fund NFO would open for subscription on Wednesday, 4th August 2021 and closes on Friday, 13th August 2021. It reopens after 5 business days for further subscription after NFO period.

Here are the NFO issue details.

Scheme Opens 04-Aug-21
Scheme Closes 13-Aug-21
Scheme reopens for continuous purchase/sale Within 5 working days
Minimum Lumpsum Rs 5,000
Minimum SIP Rs 1,000 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Risk Very High Risk
Benchmark NIFTY50 Equal Weight Index (TRI)

HDFC NIFTY50 Equal Weight Index Fund NFO SID

What is the investment objective of the HDFC NIFTY50 Equal Weight Index Fund?

To generate returns that are commensurate (before fees and expenses) with the performance of the NIFTY50 Equal Weight Index TRI (Underlying Index), subject to tracking error.

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 the allocation pattern of this index fund:

Type of instruments Min % Max % Risk Profile
Securities covered by NIFTY50 Equal Weight Index 95% 100% Very High
Debt and Money Market Securities 0% 5% Low to Medium

What is Nifty50 Equal Weight Index?

The NIFTY50 Equal Weight Index represents an alternative weighing scheme to its market capitalization weighted parent index, the NIFTY50 Index. The index includes the same constituents as its parent, however, weighted equally.

In simple terms, all NIFTY50 stocks would be forming part of this index with equal weight assigned. This index is rebalanced every quarter.

All NIFTY50 stocks would have equal weightage, however sector wise overall weightage is provided below.

HDFC NIFTY50 Equal Weight Index Fund - Sector distribution of NIFTY50 Equal weight index

What is the difference between NIFTY50 Index and NIFTY50 Equal Weight index?

We all know that NIFTY50 contains well diversified index of 50 companies. This index is computed using a float adjusted and market capitalization methodology.

On other hand, NIFTY50 Equal Weight index contains same NIFTY50 stocks, however weighted equally.

Top 5 Stocks – NIFTY50 Index Vs NIFTY50 Equal Weight Index

NIFTY50 Vs NIFTY50 Equal Weight Index - Top 5 Stocks comparison

Bottom 5 Stocks – NIFTY50 Index Vs NIFTY50 Equal Weight Index

NIFTY50 Vs NIFTY50 Equal Weight Index - Bottom 5 Stocks comparison

Why to invest in HDFC NIFTY50 Equal Weight Index Fund NFO?

Here are a few reasons to invest in such index funds.

1) This fund invests in Nifty50 equal weight index fund which will offer exposure to NIFTY50 stocks with equal weight. Nifty50 stocks are blue chip stocks that can provide stable returns in the medium to long term.

2) This index has provided stable returns in the last 1 year, 5 years and since inception. If you observe, this index gave 13.3% annualised returns in the last 5 years and 14% annualised returns since inception.

3) This fund invests in index which has equal weight that aims to reduce risk of stock / sectorial concentration.

4) This index would avoid market cap bias and help you to take part of India’s growth story.

5) Such index funds are suitable to investors who want to invest for long term of say 8-10 years.

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 Nifty50 stocks. Any investment in direct equity is considered as high risk.

2) This index fund has equal weights of Nifty50 stocks. However, Nifty50 index stocks have different weightages. In future Nifty50 index might over perform compared to Nifty50 equal weightage index. In such case, Nifty might go up, but this index might not go up in similar terms.

3) It invests up to 5% in debt instruments. There is interest rate risk, credit risk, liquidity risk etc., with corporate debt instruments.

4) This index has performed well in the last 5 years, which is majorly due to current bull run in 2020/2021. Such bull runs might not come frequently.

5) Investors should read the SID / KIM / prospectus for all risk factors before investing in such mutual funds.

How is the Performance of Nifty50 Equal Weight Index?

Now, let us look at the performance of the underlying index. Total returns include dividends, interest and rights received by the shareholders (if any).

NIFTY50 Equal Weight Index - Total returns table since inception to 2021

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Should you invest in HDFC NIFTY50 Equal Weight Index Fund NFO?

HDFC NIFTY50 Equal Weight Index Fund invests in Nifty50 index stocks on equal weightage. This index generated stable returns and delivered 14% annualised return since inception, 13% annualised returns in last 5 years and 68% returns in last 1 year (this would not include any fund management fees which would be charged by index funds). High risk investors can invest in such index funds for medium to long term. Moderate to low-risk investors should stay away from such high-risk mutual funds.

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Suresh KP

5 thoughts on “HDFC NIFTY50 Equal Weight Index Fund – Review”

  1. What is the total expense ratio for this fund? i think that would be one of the main criteria becos if it is too high (> 1-2) compared to direct index funds, then it better to go for traditional index DIRECT funds. thank you

  2. Comprehensively well presented. Similar type of funds floated by other AMC may pl be highlighted with current NAV,past performance will decide small investors to take better decision in investing their funds.

    1. Thanks Manohar. The reason NAV is not given for existing funds is that it would not indicate how fund performed in short term, medium term or long term. Thats the reason we are giving fund performance in terms of returns.

  3. I think there is an inherent flaw in this kind of “equal weight index funds”. In the normal market capitalization based index, it is the best performing stocks (means more market cap) which will get more weightage in the index and similarly less performing stocks (means less market cap) will get less weightage in the index. Whereas in the “equal weight index fund”, you will get equal weight to better performing stocks as well as less performing stocks.

    1. This is true to some extent. But see historical performance between NIFTY50 index and NIFTY50 equal weights index in medium to long term. The later is more consistent in generating high returns compared to NIFTY50 index.

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