SBI Mutual Fund has launched the SBI NIFTY50 Equal Weight Index Fund. It allocates equal weightage to all large-cap stocks in its capitalisation-based parent index, NIFTY50. The index comprises the same companies in its benchmark index, but allocates equal weights, not market cap-based weights, thus providing a broad-based growth potential across stocks and sectors.
The new fund offer (NFO) will open on January 16, 2024 and end on January 29. The minimum application amount is Rs. 5,000, and in multiples of Re. 1. Investors can choose from various systematic investment plan (SIP) options, through daily, weekly, monthly, quarterly, semi-annual, and annual SIP options.
SBI NIFTY50 Equal Weight Index Fund aims to offer an equal allocation to the 50 largest cap companies in India, according to NIFTY50, with a broad-based growth potential across stocks or sectors, rather than a few heavyweight stocks or sectors, the fund house said.
Shamsher Singh, managing director (MD) and CEO, SBI Funds Management said: “The SBI NIFTY50 Equal Weight Index Fund is a smart-beta strategy which allocates equal weight to all stocks, instead of considering market cap as the sole criteria. Investors who seek balanced diversification and a broad-based growth potential from all the companies based on its parent index, NIFTY50, passively, and at a relatively lower cost, can consider investing in this fund."
Portfolio Allocation
The scheme would primarily invest a minimum of 95 per cent and a maximum of 100 per cent of its assets in stocks comprising the NIFTY50 Equal Weight Index, and up to 5 per cent in equity derivatives or in government securities (G-secs), state development loans (SDLs), treasury bills and any other similar instruments as specified by the Reserve Bank of India (RBI) from time to time, including triparty repo and units of liquid mutual fund.
Investors’ Considerations
According to the fund house, the fund’s appeal lies in it eliminating biases associated with market-cap weighted indices. Unlike NIFTY50, where a stock or sector’s large weight can significantly bias the index, the SBI NIFTY50 Equal Weight Index Fund ensures a more balanced representation.
Managed passively, the fund aims to only minimise tracking error, thus ensuring that its performance closely mirrors the index and reduces expense ratio.
When compared to NIFTY 50 index funds, the NIFTY50 equal weight index funds have outperformed the latter in one-year and three-year returns. Over the past year, according to data from the Association of Mutual Funds in India (Amfi), the NIFTY50 equal weight index funds have delivered nearly 31.88 per cent, and over three years around 22 per cent, aligning with the benchmark with minimal tracking error. In contrast, the Nifty 50 index funds have returned 22.25 per cent and 15.68 per cent returns over the corresponding period, respectively.
