SBI Mutual Fund is launching Nifty Next 50 Index Fund that would open for subscription on April 28, 2021. As the name indicates, SBI Nifty Next 50 Index Fund would invest in the stocks that are part of Nifty Next 50 Index. This index has delivered 15% annualised returns in the last 25 years since inception. Should you invest in SBI Nifty Next 50 Index Fund NFO? What are the risk factors in this mutual fund?
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SBI Nifty Next 50 Index Fund NFO issue details
This is an open-ended index fund replicating / tracking Nifty Next 50 Index.
SBI Nifty Next 50 Index Fund NFO would open for subscription on Wednesday, April 28, 2021 and closes on Tuesday, May 11,2021. It reopens after 5 working days for further subscription.
Here are the NFO issue details.
| Scheme Opens | 28-Apr-21 |
| Scheme Closes | 11-May-21 |
| Scheme reopens for continuous purchase/sale | Within 5 days after closing date |
| 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 | Within 1 year – 1% Beyond 1 year – Nil |
| Risk | Low to Moderate |
| Max expense Ratio (TER) | 1.00% |
| Benchmark | Nifty Next 50 Index |
SBI Nifty Next 50 Index Fund NFO Scheme Information Document (SID)
What is the investment objective of the SBI Nifty Next 50 Index Fund?
The investment objective of the scheme is to provide returns that closely correspond to the total returns of the securities as represented by the 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 how the index fund would invest:
| Type of instruments | Min % | Max % | Risk Profile |
|---|---|---|---|
| Securities covered by Nifty Next 50 Index |
95% | 100% | Medium to High |
| Money Market instruments | 0% | 5% | Low |
What does Nifty Next 50 Index contain?
The NIFTY Next 50 Index represents 50 companies from NIFTY 100 after excluding the NIFTY 50 companies.
NIFTY Next 50 is computed using free float market capitalization method wherein the level of the index reflects total free float market value of all the stocks in the index relative to a particular base market capitalization value.
Here is the list and their weightage in this index by sector and top constituents as of now.
Why to invest in SBI Nifty Next 50 Index Fund?
Here are a few reasons to invest in such index funds.
1) This fund invests in Nifty Next 50 which are part of NIFTY100 and after excluding NIFTY50 stocks. These are blue chip stocks (beyond NIFTY50) 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 12% annualised returns in the last 5 years and 15% annualised returns since inception.
3) You might have doubt whether your largecap fund or midcap fund would perform well or not in the long term. In case of SBI NIFTY Next 50 Index fund, there are greater chances that this index would perform well in the long run based on past performance in the last 15-20 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 50 stocks beyond NIFTY50 that are part of NIFTY100. This 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 annualised returns are at 12%. 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.
4) Investors should read the SID / KIM / prospectus before investing in such mutual funds.
How is the Performance of Nifty Next 50 Index?
Now, let us look at the performance of the underlying index where this fund would going to invest. Total returns include dividends, interest and rights received by the shareholders (if any).
How is the Performance of existing Nifty Next 50 Index Mutual Funds?
While the fund would replicate the index stocks, the returns could also vary due to tracking error, management fees and to the extent of investments made in the debt portion of the fund.
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Should you invest in the SBI Nifty Next 50 Index Fund NFO?
SBI Nifty Next 50 Index Fund invests in Nifty Next 50 index stocks. This index provides stable returns and delivered 15% annualised return since inception, 12% annualised returns in last 5 years and 62% returns in last 1 year. High risk investors can invest in such index funds. Moderate to low risk investors should stay away from such investments.
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Hey Suresh, thanks for sharing this insightful article. I also wanted to invest in SBI Nifty Next 50 Index Fund but had some queries. After reading this article all those doubts are now clear.
How does compounding work with Mutual Funds?
If there are any returns in year, the returns from subsequent onwards would be compounded (returns would be on principal+1st year returns) and this goes on.