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Mirae Asset Nifty Next 50 ETF launched: What is it and who may benefit?

Sunil Dhawan
NFO 2020, index fund, Nifty Next 50, MF schemes, ETF

Mirae Asset Mutual Fund has launched Mirae Asset Nifty Next 50 ETF, an open-ended scheme replicating or tracking Nifty Next 50 Total Return Index. The New Fund Offer (NFO) is open between 13/01/2020 and 21/01/2020, while the scheme re-opens for continuous sale and re-purchase on and from 27/01/2020. The minimum investment during the NFO period is Rs 5,000. Post the NFO period, the investor can buy or sell ETF units in any quantity on an exchange or directly with AMC in multiples of creation unit size of 10,000 units.

But, for whom are such funds aimed at? For those who look for MF schemes that have the potential to generate a return higher than the benchmark or the index that the fund tracks, the active funds managed by a fund manager suits. The downside of such funds is that they may provide negative returns too. For those who look for MF schemes that can generate a return commensurate with that of the index, the index fund is the answer. Most index funds track Nifty 50 or Sensex stocks.

For mutual fund investors looking to invest just beyond the Nifty 50 stocks, the schemes benchmarked to Nifty Next 50 could serve as an alternative. There are several MF schemes either available as an exchange-traded fund (ETF) or as an index fund that replicates the Nifty Next 50 Total Return Index. Being an ETF, the units are available on the stock exchange for sale and purchase.

Mirae Asset Nifty Next 50 ETF, is one such index fund that will track the Nifty Next 50 index. It will consist of 50 large-cap companies which are part of the Nifty 100 index but does not form part of Nifty 50. Effectively, the Nifty Next 50 Index consists of smaller large-cap companies and thus historically has provided a blend of large-cap and mid-cap segment both in terms of portfolio and performance. The investment objective of the scheme is to generate returns, before expenses, that are commensurate with the performance of the Nifty Next 50 Total Return Index, subject to tracking error.

For an investor, the performance of NIFTY Next 50 fund will largely depend on the portfolio of the NIFTY Next 50index.

According to the fund house, here are a few important features of the portfolio:

  • NIFTY Next 50 portfolio captures the essence of large caps and midcaps
  • NIFTY Next 50 portfolio provides different stock and sector exposure in large-cap space
  • NIFTY Next 50 has given better returns than NIFTY 50 and NIFTY Midcap Index along with a comparable return to risk ratio v/s NIFTY 50 over longer horizons.
  • Since 2009, NIFTY Next 50 has outperformed NIFTY 50 in 6 Calendar years and Midcap 100 in 7 calendar year respectively.
  • NIFTY Next 50 has consistently given better 3 yr rolling returns than NIFTY 50 and NIFTY Midcap 100
  • NIFTY Next 50 portfolio is more diversified as compared to NIFTY 50

The average market-capitalization of Nifty Next 50 is about Rs 30,000 crore compared to Nifty 50s average of about Rs 65,000 crore. And, as the portfolio of NIFTY Next 50 is more diversified as compared to NIFTY 50, the potential to generate a higher return in the long term exists. However, compared to Nifty 50 index or funds mirroring it, the Nifty Next 50 funds are likely to be more volatile and thus the risk may also be higher in such funds.

The NIFTY Next 50 portfolio is often referred to future Blue-Chips but not all stocks within the portfolio may result in achieving that status. Some of them may even fall off the race thus impacting potential returns in the long term.

One needs to evaluate one’s own risk profile and may even consult his or her financial advisor before investing in such schemes.