Kotak Mutual Fund has launched Smallcap 50 Index Fund NFO which would open for subscription on 16th March, 2023. This small cap index fund invests in small cap companies that are part of NIFTY Smallcap 50 Index. Generally midcap and smallcap funds are risky, however, provide high returns in medium to long term. Should you invest in the Kotak Nifty Smallcap 50 Index Fund NFO? What are the risk factors one should consider before investing in such small cap funds?
Also Read: 5 Equity Funds with 1 year return up to 24%
What is Nifty Smallcap 50 Index?
The primary objective of the Nifty Smallcap 50 Index is to capture the movement of the smallcap segment of the market. The index represents top 50 companies selected based on average daily turnover from the top 100 companies selected based on full market capitalization in Nifty Smallcap 250 Index.
Nifty Smallcap 50 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.
Nifty Smallcap 50 Index can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured products.
Kotak Nifty Smallcap 50 Index Fund – NFO Issue Details
This is an open-ended mutual fund. Here are the NFO issue details.
| Scheme Opens | 16-Mar-23 |
| Scheme Closes | 29-Mar-23 |
| Scheme reopens for continuous purchase/sale | Within 5 business days |
| Minimum Lumpsum | Rs 5,000 |
| Minimum SIP | Rs 500 for 10 months |
| NAV of the fund | Rs 10 during NFO period |
| Entry Load | Nil |
| Exit Load | Nil |
| Risk | Very High |
| Benchmark | Nifty Smallcap 50 Index TRI |
| Fund Manager | Mr. Devender Singhal Mr. Satish Dondapati and Mr. Abhishek Bisen |
| Total Expense Ratio (TER) | 1.00% |
You can read Kotak Nifty Smallcap 50 Index Fund NFO SID here.
What is the investment objective of Kotak Nifty Smallcap 50 Index Fund?
The investment objective of the scheme is to replicate the composition of the Nifty Smallcap 50 Index and to generate returns that are commensurate with the performance of the Nifty Small cap 50 Index, subject to tracking errors.
However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved
What is the allocation pattern in this mutual fund scheme?
This fund investment pattern is as follows:
| Type of instruments | Min % | Max % | Risk Profile |
|---|---|---|---|
| Equity and Equity related securities covered by the Nifty Smallcap 50 Index | 95% | 100% | Very high |
| Debt and Money Market Securities | 0% | 5% | Medium to low |
What does the underlying index contain?
Performance and Risk Statistics of the underlying index
Chart indicating how this index performed over 15 years time frame
Why should you invest in Kotak Nifty Smallcap 50 Index Fund NFO?
There are no major reasons to invest in this fund.
Key risk factors to consider before investing in such funds
One should consider some of these risk factors / negative factors before investing.
1) This fund would invest in small cap 50 index, which contains smallcap companies. Small cap funds are always considered as high risk. These are volatile in nature. Fund manager can face liquidity issues with some of the small cap stocks.
2) This index has generated negative returns in the last 5 years. Even in the last 15 years, this fund generated almost zero or minimal returns.
3) Investors should read the NFO prospectus before investing in such mutual fund schemes.
Also Read: Worst Performing SIP Mutual Fund in short to long term
Should you invest in Kotak Nifty Smallcap 50 Index Fund NFO?
This fund invests in stocks of the Nifty Smallcap 50 index.
While index funds would deliver risk adjusted returns, this index has generated negative returns in the last 5 years (2018-2023) and almost minimal returns in the last 15 years (2008 peak to now in 2023).
Investors can rather relook at investing in the Nifty Smallcap 250 index (that contains 250 stocks) rather than Nifty Smallcap 50 index (that contains only 50 stocks). Nifty Smallcap 250 index generated 6.75% annualised returns in the last 5 years, 14.4% annualised returns since inception and over 6% annualised returns in the last 15 years (2008 peak to now).
Considering the pathetic performance of this index in the short term, medium term and long term, investors can avoid this NFO for now.
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