Reliance Mutual Fund has filed papers for a Nifty Next 50 Fund of Funds (FoF) with SEBI, which will invest in a Reliance ETF tracking this particular Index. The fund named Reliance Junior BeES FoF will invest in the Junior BeES ETF tracking the Nifty Next 50
What is the Nifty Next 50?
The Next 50 is the bottom half of the Nifty 100. It is comprised of the 50 companies by market cap that fall below the top 50 listed companies in the Nifty.
Britannia Industries, JSW Steel, Godrej Consumer Products, Motherson Sumi and Dabur India dominate this index. Consumer Goods are its largest component at 27.58%, followed by financials at 16.73% and automobiles at 11.15%. The share of consumer goods has increased steadily in the recent past. The Nifty 50, one the other hand, is led by Financial Services (37.14%), Energy (13.95%) and IT (13.44%).
The Nifty Next 50 Index had a one year return of 7.76% and a five year return of 19.63% as on June 29th, 2018. This compares unfavourably to the headline Nifty 50 (12.53%) over the past year (12.53%) but favourably over a longer time horizon (12.9%).
What is an FoF?
An FoF or Fund-of-Funds imply invests in another fund, in this case, the Reliance Junior BeES ETF which in turn invests in the Nifty Next 50 stocks. An ETF is not available to investors without demat and trading accounts (unless they can buy huge quantities of the ETF directly from the fund house). Fund houses remedy this lacuna by launching FoFs to open the ETF to ‘non-trading’ investors too.
You can invest in an FoF just like any other mutual fund by buying units from the fund house on any trading day at the stated NAV. You do not need a demat and trading account. You only need to have your mutual fund KYC (Know Your Customer) in place. Your units will be held in electronic form by an RTA (Registrar and Transfer Agent) like CAMS or Karvy instead of in a demat account by NSDL or CDSL.
On the flipside, investing through an FoF can marginally increase your costs because another layer of costs gets added to your holding.
The benchmark of the fund will be the Nifty Next 50 Index. The fund will have to invest 90-100% of its assets in units of the Reliance Junior BeES Index which tracks the Nifty Next 50. Reliance Junior BeES has a size (AUM) of Rs 394 crore. Payal Wadhwa Kaipunjal who manages other Reliance ETFs will manage this fund.