ICICI Prudential Nifty Auto Index Fund NFO – Quick Review

ICICI Prudential Mutual Funds has launched Nifty Auto Index Fund (new fund offer). This NFO would open for subscription on 22nd September, 2022. This mutual fund scheme would invest majorly in companies that are part of the Nifty Auto Index. This index has delivered 33% returns in the last 1 year, however delivered 5.8% annualized returns in last 5 years. Should you invest in ICICI Prudential Nifty Auto Index Fund NFO?  What are the various risk factors associated with such funds?

Also Read: Unique New Mutual Fund Schemes in 2022

ICICI Prudential Nifty Auto Index Fund (NFO) – Issue details.

ICICI Prudential Nifty Auto Index Fund is an open-ended equity scheme that invests in companies that are part of the Nifty Auto index.

Scheme Opens 22-Sep-22
Scheme Closes 06-Oct-22
Scheme reopens for continuous purchase/sale Within 5 working days
Minimum Lumpsum Rs 1,000
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 Nifty Auto TRI
Fund Manager Mr. Kayzad Eghlim and
Mr. Nishit Patel.
Max TER 1.00%

ICICI Prudential Nifty Auto Index Fund SID

What is the investment objective of this MF scheme?

The objective of the Scheme is to invest in companies whose securities are included in the Nifty Auto Index and subject to tracking errors, to endeavor to achieve the returns of the above index. This would be done by investing in all the stocks comprising the Nifty Auto Index in the same weightage that they represent in the Nifty Auto Index.

There is no assurance or guarantee that the investment objective of the scheme will be realized.

What is the allocation pattern in this mutual fund?

This fund invests pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equity and Equity related securities of companies constituting the underlying
index (Nifty Auto Index)
95% 100% Very High
Money Market instruments including TREPs and Units of debt schemes 0% 5% Low to Medium

What does Nifty Auto Index Contains?

NIFTY Auto Index is designed to reflect the behavior and performance of the Automobiles segment of the financial market.

ICICI Prudential Nifty Auto Index Fund NFO – Quick Review

This Index consists of 15 listed companies. The index represents auto related sectors like Automobiles 4 wheelers, Automobiles 2 & 3 wheelers, Auto Ancillaries and Tyres.

NIFTY Auto Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value.

This index was launched in 2011, however base valuation is created from 2004.

This index would be rebalanced semi-annually.

Beta of the fund is ranging between 1.03 to 1.06 in the last 5 years. Means, it is a high risk category.

Current P/E of the index is 48x and dividend yield is 1%.

Here are the Top-10 holdings:

ICICI Prudential Nifty Auto Index Fund - Top 10 Holdings of Nifty Auto index

Past Performance of Nifty Auto index

Below is the performance of this index for the last 1 year, 5 years and since inception of 18 years (back tested data as this index was launched 11 years back only).

Nifty Auto index - Returns from 2004 to 2022

Why to invest in ICICI Prudential Nifty Auto Index Fund NFO?

Here are the major reasons to invest in this fund

1) Auto stocks have been in downtrend in the last few quarters. Fall in crude prices, drop in metal prices etc. can push the auto sector on the positive side in coming quarters / years.

2) Nifty Auto sector could be the next growth driver in India as there is strong government push Electric Vehicles (EV) policy.

3) The underlying index delivered 16% annualized returns since inception of 2004.

Risk factors in such funds

One should consider some of these risk factors / negative factors before investing.

1) This fund is classified as a sector fund i.e. It invests only in companies that are part of the Nifty Auto index. Investing in sector mutual funds are high risk as there is concentration only into one sector. Downtrend in this sector can be seen in the performance of the fund within short time.

2) This segment has under-performed compared to other equity funds. This segment generated 5.7% annualized returns in the last 5 years. Equity mutual funds on the other hand generated 12% to 15% annualized returns in a similar time frame.

3) While there is push from government on new EV policy, we do not know how successful this initiative would be.

4) You can refer complete risk factors of investing in this scheme to SID / KIM / NFO prospectus.

Also Read: Best Large and Midcap Mutual Funds in 2022

ICICI Prudential Nifty Auto Index Fund NFO – Should you invest?

This fund invests in companies that are part of the Nifty Auto index. Since it invests in only Nifty Auto companies i.e. single index, it is high risk.

Auto industry includes electric vehicles, cars, buses, trucks, two wheelers etc. It is one of the most promising sectors in India now. Indian EV market could be the major force in the global car industry.

While the returns are on the lower side in the last 5 years, new EV policy, fall in crude prices and decline in metal prices would push the auto sector for next few years.

High risk investors can invest in such funds for 5 + year time frame.

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Suresh KP

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