Zerodha Nifty Large Midcap 250 Index Fund NFO – Is It a Smart Investment?

Zerodha recently introduced the Nifty Large Midcap 250 Index Fund, including an Equity-Linked Savings Scheme (ELSS) variant. The subscription window for this fund opened on October 20, 2023, and it will remain open until November 3, 2023, during the initial New Fund Offer (NFO) period. This fund aims to invest in the Nifty Large Midcap 250 Index, composed of stocks from both the Nifty 100 and Nifty Midcap 150. Historically, this index has delivered over 15% annualized returns. But should you consider investing in the Zerodha Nifty Large Midcap 250 Index Fund NFO? Let’s take a closer look and assess the risk factors associated with this mutual fund.

Zerodha Nifty Large Midcap 250 Index Fund – NFO Details

Before we delve into the investment objective and allocation pattern, here are the key details of the NFO:

  • Fund Name: Zerodha Nifty Large Midcap 250 Index Fund
  • Scheme Information Document (SID): Link here
  • Subscription Period: October 20, 2023, to November 3, 2023

Investment Objective

The primary objective of the Zerodha Nifty Large Midcap 250 Index Fund is to invest in stocks that mirror the Nifty Large Midcap 250 Index’s composition. The aim is to achieve returns equivalent to the Total Return Index of the Nifty Large Midcap 250 Index, subject to tracking error. It’s important to note that there’s no guarantee that the investment objective will be fully realized.

Allocation Pattern

This index fund will invest in accordance with the following allocation pattern:

Type of instruments Min % Max % Risk Profile
Equities and equity related securities covered by Nifty LargeMidcap 250
Index
95% 100% Very High
Debt and Money Market Instruments 0% 5% Low to Moderate

What Does the Nifty Large Midcap 250 Index Fund Contain?

The Nifty Large Midcap 250 Index reflects the performance of a portfolio comprising 100 large-cap and 150 mid-cap companies listed on the National Stock Exchange (NSE). This is represented through the Nifty 100 and Nifty Midcap 150 indices, with each accounting for 50% of the aggregate weight. The weights are adjusted on a quarterly basis. Worth noting is that this index was introduced in November 2017 but is benchmarked back to 2005.

Weighate in Nifty LargeMidcap 250 Index

Top Constituents of this index

Performance of the Nifty Large Midcap 250 Index Fund

Now, let’s turn our attention to the performance of the underlying index in which this fund will invest. Total returns encompass dividends, interest, and any rights received by shareholders.

Reasons to Consider Investing in Zerodha Nifty Large Midcap 250 Index Fund

Here are a few reasons to invest in this index fund as part of your investment strategy:

  • Diversification: This fund tracks the Nifty Large Midcap 250 Index, offering a balance between stable returns and the potential for higher returns, making it suitable for investors with a higher risk appetite.
  • Growth Opportunities: Midcap stocks have the potential to evolve into large-cap and blue-chip companies over the short to medium term. Investing in such funds allows you to tap into these opportunities.
  • Historical Performance: Over the past five years, this index has delivered an impressive 17% total return, with a 15.8% return since its inception.

Key Risk Factors to Consider

Before diving in, it’s crucial to be aware of the following risk factors:

  • High Risk Segment: This index fund focuses on midcap stocks, which are inherently high risk. The volatility in midcap stock prices can be reflected in this index.
  • Debt Instrument Exposure: The fund may invest up to 5% in debt instruments, introducing potential interest rate, reinvestment, credit, and liquidity risks.
  • Read the Prospectus: As with any investment, it’s essential to thoroughly review the Scheme Information Document (SID) and prospectus before making a decision.

Should You Invest in Zerodha Nifty Large Midcap 250 Index Fund NFO?

The Zerodha Nifty Large Midcap 250 Index Fund invests in an index that combines Nifty 100 and Midcap 150 companies. This index has demonstrated strong historical performance, with an annualized return of 15.8% since 2005, 17% over the last five years, and 21.9% in the past year.

However, it’s important to consider that midcap stocks, while offering growth potential, also come with higher risk. For instance, in the past week, the index experienced a 4% drop, highlighting this risk. There’s no guarantee that this index will consistently generate stable returns that can offset midcap stocks’ volatility.

Investors with a higher risk tolerance seeking a blend of large-cap and midcap exposure can invest in this index fund.

Alternatively, one could consider investing in large-cap and midcap index funds separately, providing flexibility to navigate various risk levels.

 

2 comments

  1. Zerodha has launched a new low cost index fund in a market already flooded with lot of etfs and index funds.Historic returns from index funds are not very attractive and risk remains the same.
    I was expecting a more innovative active fund from Zerodha for small investors with alpha+ returns index funds

    1. You cannot expect any innovative funds in in existing index categories except low cost funds. But I agree that if such market is already flooded who would be interested in new funds in same market.

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