Reliance Mutual Fund has filed papers with market regulator SEBI to launch the Reliance Midcap 150 ETF. The ETF will track the Nifty Midcap 150 index. The index tracks the 150 companies that come after the top 100 listed companies in India by market capitalisation.
The scheme will invest 95-100% of its assets in the companies constituting the index with the rest 0-5% in money market instruments. The scheme will be managed by Payal Wadhwa Kaipunjal who manages other Reliance ETFs such as Reliance ETF Nifty BeES and Bank BeES.
However, the role of a fund manager is very limited in this type of scheme because it passively tracks an index and no active calls are needed from the fund manager. The minimum application amount will be Rs 5000.
Nifty 150 Midcap Index
The index tracks the 150 largest companies by market capitalisation that follow the top 100 companies (ranked 100-250 in terms of market cap). As of 31st May 2015, the index had a 5-year return of 22.04% (CAGR) and a one year return of 14.07%. The Nifty 50, by comparison, delivered 10.11% and 14.38% (CAGR) over the same time periods. Financial Services is the largest sectoral component in the Nifty 150 at 29%, but this is somewhat lower than their share in the Nifty 50 at 38%. Energy and IT follow financial services in the Nifty 50, while consumer goods and pharma do so in the Nifty 150.
There is also much less concentration in the Nifty 150 than the Nifty 50. The Nifty 50’s top stocks – HDFC Bank, Reliance Industries and HDFC account for 10.4%, 7.5% and 7.2% of the index respectively. On the other hand, RBL Bank, Edelweiss Financial Services and Federal Bank are the top stocks in the Nifty 150 and they account for 1.95%, 1.84% and 1.81% of the index respectively.
Investing in this ETF will get you a very different set of stocks from the main Nifty Index. These smaller companies have also delivered better returns over the past few years. It is difficult to say if this outperformance will continue but the diversification benefits will accrue to you, regardless. Do note, however, that active funds are still outperforming ETFs in India on average and picking good funds can get you even more outperformance. However, this scenario may come to an end as the market matures and information asymmetries reduce.