Nippon India Nifty Smallcap 250 Index Fund NFO – Should you Invest?

Nippon India Nifty Smallcap 250 Index Fund NFO - Should you invest or avoidNippon India Nifty Smallcap 250 Index Fund NFO

Nippon India MF is launching NIFTY Smallcap 250 Index Fund NFO that would open for subscription on September 29, 2020. Nippon India Nifty Smallcap 250 Index Fund invests in small cap companies that are part of NIFTY Small Cap 250 Index. Stock market experts believe that since large cap stocks have already raised and at peak, in coming months, midcap and small cap stocks are expected to rally. Should you invest in the Nippon India Nifty Smallcap 250 Index Fund NFO? Who can invest in these small cap mutual funds?

Also Read: How did Quant Smallcap fund gave 60% returns in last 3 months?

What is NIFTY 250 Smallcap Index?

This mutual fund would invest in NIFTY 250 smallcap index, hence it is important to know about this index.

NIFTY Smallcap 250 index consists of 250 companies that are ranked from 251-500 from NIFTY 500. This smallcap index intends to measure the performance of small market capitalisation companies.

Nippon India Nifty Smallcap 250 Index Fund NFO – Issue Details

This is an open-ended mutual fund. Here are the NFO issue details.

Scheme Opens 28-Sep-20
Scheme Closes 09-Oct-20
Scheme reopens for continous purchase/sale 23-Oct-20
Scheme Plans Direct and  Regular
Growth and Dividend
Minimum investment (Lumpsump) Rs 5,000
Minimum investment (SIP) Rs 500 / 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Risk Moderately High Risk
Max Total expense Ratio (TER) 1.00%
Benchmark Nifty Smallcap 250 TRI

Download Nippon India Nifty Smallcap 250 Index Fund NFO KIM

Who is eligible to invest in this mutual fund scheme?

The following can invest in this scheme.

1) Indian resident adult individuals, either singly or jointly.

2) Minors through Parents/Lawful Guardian.

3) Hindu Undivided Family (HUF) through its Karta.

4) Partnership Firms in the name of any one of the partners.

5) Proprietorship in the name of the sole proprietor.

6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.

7) Banks

8) Non-Resident Indians (NRIs) / Persons of Indian Origin (PIO) on full repatriation basis or on non-repatriation basis;

Complete list of eligible participants who can invest can be checked in the NFO prospectus.

Who is the Fund Manager of Nippon India Nifty Smallcap 250 Index Fund NFO?

The Fund Manager is Mr. Mehul Dama.

What is the benchmark for this scheme?

The benchmark for this scheme is Nifty Smallcap 250 Index.

What is the composition of this NIFTY Smallcap 250 Index Fund?

Let us see the composition of this index fund by sector.

Nippon India Nifty Smallcap 250 Index Fund NFO – Investment Objectives

This scheme aims to provide investment returns closely corresponding to the total returns of the securities as represented by the Nifty Smallcap 250 Index before expenses, 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:

1) It invests 95% to 100% in securities constituting Nifty Smallcap 250 index. The risk profile in this segment is medium to high.

2) It invests 0% to 5% in Money Market instruments, Reverse repo and / or TriParty Repo and/or Schemes which invest predominantly in the money market securities or Liquid Schemes. The risk profile in this segment is low to medium.

Can NRI invest in this MF scheme?

Yes, they can invest in this scheme. They can invest on repatriation or non repatriation basis. However, Resident of Canada, US persons and OCBs cannot invest in this scheme.

Why should you invest in Nippon India Nifty Smallcap 250 Index Fund NFO?

Here are a few reasons to invest in such schemes.

1) This fund would invest in small cap index fund that has stocks of 250 small cap companies (251-500 market capitalization based). Investing in index funds for the long term would help your money grow instead of picking up a few companies from this small cap segment.

2) Small cap funds has been underperforming in the last 2-3 years. Many stock market experts are expecting that in the near future, small cap stocks are expected to rise. This would be a good opportunity if you are investing in small cap funds.

3) While large cap funds can provide stable returns, small cap stocks can be multibaggers in invested in medium to long term. Hence, investing in small cap funds would be the best bet.

Major risk factors you should 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 index, which contains 250 smallcap companies. Small cap funds are very high risk.

2) Unlike other small cap funds where fund manager would have an option to pick and choose funds, this small cap index fund would not have this option. Even if the fund manager does not like a particular stock or any stock under performing in the small cap index, they are forced to invest in these stocks as they are part of the small cap index.

3) Owning to the nature of the small cap segment, these are high risk in nature. These are not suitable for low risk or moderate risk takers.

4) Investors should not assume any guaranteed returns from these MF schemes.

5) Investors should read the NFO prospectus before investing in such mutual fund schemes.

How is the Performance of existing NIFTY 250 Smallcap index funds?

There is only single fund that invested in this index, which is Motilal Oswal NIFTY 250 Smallcap index fund that came 1 year back.

1 year returns – 4.77%

6 months returns – 41%

Are small cap funds better than small cap index funds?

Now let us check the performance of some of the top performing small cap mutual funds. If you observe, some of the small cap funds have beaten the benchmark.

Fund Name 6 months Annualised Returns
1 Year 3 Year 5 Year
SBI Small Cap Fund 36% 14% 6% 13%
Axis Small Cap Fund 24% 10% 8% 11%
Nippon India Small Cap Fund 44% 11% 2% 11%
Kotak Small Cap Fund 40% 14% 2% 9%
L&T Emerging Businesses Fund 36% -3% -5% 8%
HDFC Small Cap Fund 35% -5% -1% 8%
DSP Small Cap Fund 39% 14% -1% 7%
Quant Small Cap Fund 85% 45% 4% 6%
Union Small Cap Fund 40% 20% 2% 6%

Also Read: 5 Best Smallcap Funds to invest in 2020

Should you invest in the Nippon India Nifty Smallcap 250 Index Fund NFO?

This fund would invest in NIFTY Smallcap 250 index stocks. Index funds would offer less returns compared to mutual funds that invests in that particular segment. Motilal Oswal Smallcap index fund that came last year has given 4.7% returns in last 1 year. Assume that small cap stocks would rise in the next couple of years than one can expect 8% to 10% annualized returns. Is this what you are expecting, then you can go ahead and invest. If not, consider investing in 2-3 small cap mutual funds that can give higher returns in the medium to long term. One should note that such small cap funds are for HIGH RISK investors only.  Moderate to low risk investors should stay away from such funds.

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Suresh KP


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