Nippon India Mutual Fund has recently come up with new open-ended equity scheme named Nifty 500 Equal Weight Index Fund which will index Nifty 500 Equal Weight Index. This fund will give investors an opportunity to invest in a number of companies that are spread across all the industries in the Indian market. However, what about it as an investment? Below is the detailed information about the fund and how it shall be of significance.
What is the Nifty 500 Equal Weight Index?
The Nifty 500 Equal Weight Index is a stock market index majoring the top 500 company in NSE, that offers a variety of sectors and different market capitalization. While ordinary indices are based on the market capitalization basis where the weightage is attributed to the market value of the company’s stock, the equal weight index accords equal weightage to every stock of the index companies. It gives less focus to the big stocks which are usually dominant in the portfolio making this approach as a more non-concentrated approach.
Key Benefits of the Fund
1. Diversification Across Sectors: The Nifty 500 Equal Weight Index Fund gives good amount of diversification in terms of sectors and businesses. The investment in this fund gives an investor substantial holdings in large cap, mid cap and small cap stocks thus minimizing the dangers of having most of your investment in a few large companies.
2. Balanced Exposure: Unlike the market-cap weighted indices where the larger companies dominate this equally weighted index provide the small companies an equal shot. Such a positioning results in improved performance in periods where mid and small cap benchmarks beat large cap peers.
3. Reduced Risk of Overconcentration: The equal weight methodology also reduces the over concentration in its particular stock or particular sector. It becomes more effective during a downturn because a contraction in any large stock is buffered, or at least its effects are not as widespread.
4. Cost-Effective Investment: Like most index funds due to lack of active management the Nifty 500 Equal Weight Index Fund tends to have lower managements fees than actively managed funds. This makes it cheaper for the investors interested in introducing more investment portfolios to their collection without fearing the expenses involved in the process.
Considerations Before Investing
- Market Volatility: While investing/involvement is fairly distributed, the fund is also has a prone volatility of the stock market. The performance of the fund will be a reflection of performances of the stocks in the index which may be affected by various macroeconomic factors.
- Long-Term Investment Horizon: Due to the diversified character of this fund it may be advised to long term investor only. It can be less suitable for getting a quick profit or those with low tolerance to risk.
- Performance Tracking: Being an index fund, its primary aim is to track the Nifty 500 Equal Weight index and therefore, it will not take great leaps and bounds to beat the market. The investors need to have low investment expectations and know that the returns on the fund will be nearly equal to that of the index.
Conclusion
The Nippon India Nifty 500 Equal Weight Index Fund – The SIP route is again extremely suitable for the creation of diversified portfolios that offer enhanced exposure towards a balanced market index. RBI adopts an equal weight system hence minimizes over concentration and also allows diversification in the various sectors. However, the potential investors should bear in mind some factors such as the investment horizon, the level of risk that they are willing to take, and the general risk inherent in the markets that investors will be competing in. So, every time it’s recommended to seek advice from a financial advisor on whether to invest in this fund or not.