UTI Mutual Fund is launching a new exchange-traded fund (ETF) that will be open for subscription from 8th June to 20th June 2018. The UTI Next 50 Index Fund will track the Nifty Next 50 Index. The Nifty Next 50 is the 50 companies comprising the bottom half of the Nifty 100. In other words, it includes the 51st to the 100th largest listed company.
UTI AMC already has an ETF which tracks this index which was launched on 28th July 2017. The ETF has given a return of 3.29% since then (as of 8th June 2018).
An index fund passively tracks a stock market index. As a result, its fees and expenses tend to be lower than an actively managed fund. On the other hand, it also gives up on the possibility of outperformance since it only seeks to replicate the index.
Index funds or ETFs?
ETFs or Exchange Traded Funds also passively track indices. They are traded on the stock exchange and can be purchased and sold on the stock exchange. An ETF can be traded higher or lower than its NAV on the stock market potentially causing retail investors to overpay for the product.
In theory, investors can directly transact with the AMC for ETFs as well, but this is usually restricted to investors who can transact in large amounts. Thus, on a practical level, it is difficult for ordinary investors to invest in ETFs without demat and trading accounts. An index fund does not require these accounts. It can be bought and sold like any other mutual fund directly from the fund house, according to the prevailing NAV.
Nifty Next 50 Index
The Nifty Next 50 tracks the bottom half of the Nifty 100, the 51st to 100th largest stock in the Nifty 100. As of 31st May 2018, it had a five-year CAGR of 18.89% higher than the 12.39% delivered by the Nifty 50. On a 1-year basis, it has a return of 12.35% compared to 11.59% for the Nifty. The Index is led by companies like Britannia Industries, JSW Steel and Godrej Consumer Products compared to HDFC Bank, Reliance Industries and HDFC for the Nifty 50. The Nifty Next 50 is also much less concentrated than the Nifty 50.
On a sectoral basis, the index is dominated by Consumer Goods (25.60%), Financial Services (17.65%) and Automobiles (11.83%) compared to Financial Services (37.65%), Energy (13.97%) and IT (12.59%) for the Nifty 50.
Active funds are still outperforming passive index funds in India although this may come to an end as the market matures. If you are already sold on passive funds and you do not have a trading and demat account, this may be a good option for you. The Nifty Next 50 has delivered a fair bit of outperformance to the Nifty 50. Its sectoral composition and key constituents also offer some real diversification.
NFO Period: 8th June to 22nd June 2018, Scheme reopens for continuous subscription on 4th July 2018
Minimum Investment: Rs 5000
Benchmark: Nifty Next 50
Options: Growth Option only
Fund Manager: Kaushik Basu