Aditya Birla Sun Life Nifty Next 50 ETF opens for subscriptionAditya Birla Sun life Mutual Fund’s new fund offer (NFO), ABSL Nifty Next 50 ETF, opens today, December 11, 2018 and will close on December 17, 2018. This fund will take exposure in most liquid stocks in the market, represented by Nifty Next 50 index, and provide diversified equity exposure to investors. Scheme re-opens within five business days from the date of allotment. The units of scheme will be listed on the NSE and BSE.

As this scheme is an ETF (Exchange Traded Fund), it has advantages over other open ended index schemes, as it can be bought and sold on the exchange. This is the fourth fund being launched in this category, the other three funds being offered by SBI Mutual Fund, UTI Mutual Fund and ICICI Prudential Mutual Fund; total corpus in these funds amounts to Rs 54 Cr.

This category is evolving and does not have a significant track record. We compared one-year rolling returns of Nifty 50 vs Nifty Next 50.

nifty50 Nifty next 50 comparison

As anticipated, Nifty Next 50 index has shown more volatility and higher long-term performance compared with Nifty 50. ETFs following this index would also be prone to such behaviour.

Asset allocation:

Instrument Normal Allocation (% of total Assets) Risk Profile
Equities and Equity Linked instruments covered by the underlying Index 95% to 100% Medium to High
Cash/Money Market Instruments and Units of Liquid Mutual Fund 0% to 5%  Low

The scheme will invest predominantly in stocks constituting the Nifty Next 50 Index. This would be done by investing in all the stocks comprising the Nifty Next 50 Index in the same weightage that they represent in the Nifty Next 50 Index The ABSL Nifty Next 50 ETF will have a minimum 95% in equity & equity linked instruments covered by the index. The cumulative gross exposure through equity, debt and derivative positions will not exceed 100% of the net assets of the scheme.

The scheme strategy states it will try to avoid investment in money market securities and any exposure to these securities would be for redemption purpose only. Money market instruments are commercial papers, T-bills, commercial bills, call or notice money, CDs or any other instruments as specified by RBI with maturity upto 91 days and the government securities with unexpired maturity upto one year.

The fund would be managed by Lovelish Solanki who has 10 years of experience in trading and dealing. He is independently managing ABSL Arbitrage Fund, ABSL Nifty ETF, ABSL Sensex ETF, ABSL Gold Fund and co-managing ABSL Equity Savings Fund.

Tax Impact:

Being an equity fund, STCG of 15% will be applicable for holding period of less than 1yr. In excess of 1yr LTCG tax of 10% will be levied; however capital gains below Rs 1 Lac are tax free in the hands of investors.

Key Features:

Parameter Description
Investment Objective The investment objective of the scheme is to provide returns that closely correspond to the total returns of securities as represented by Nifty Next 50, subject to tracking errors.
Suitable For Long term investments in securities covered by Nifty Next 50 Index
Risk Profile High Risk
Minimum Application Amount Minimum of Rs 5,000/- and in multiples of RS 1000/- thereafter during the New Fund Offer period.
Exit Load Nil. The units of the scheme shall be compulsorily traded in dematerialised form, and hence, there shall be no exit load for the units purchased or sold through stock exchanges. However, the investor shall have to bear costs in form of bid/ask spread and brokerage or such other cost as charged by the broker for transacting in units of the Scheme through secondary market.

RupeeIQ take:

The markets have been volatile in the last few weeks because of political uncertainties and will continue to be volatile in the run up to general elections in May’19. While we don’t advise timing the market, yet we think there could be opportunities to invest in Nifty. Especially for investors who are new to equities exchange traded funds look like a good option at this point in time. Existing investors may look at such schemes for hedging their portfolios.

Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Author
Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com