Navi Mutual Fund has launched a New Fund Offer (NFO) for the Navi Nifty Next 50 Index Fund on January 1, 2022. This open-ended equity index fund seeks to replicate the Nifty Next 50 Index. The fund has the lowest expense ratio in this category, at just 0.12% p.a., for direct plans, according to ICRA as on September 30, 2021. The NFO will close on January 14, 2022.
Investing in the market leaders of tomorrow
Launched in December 1996, the Nifty Next 50 index represents the largest 50 companies by market capitalisation, after the Nifty 50 companies. The Navi Nifty Next 50 Index Fund, therefore, provides a cost-effective way of investing in the blue-chip companies of tomorrow. This is evidenced by the fact that 51 out of the 75 stocks included in the Nifty 50 index in the last 19 years were from the Nifty Next 50 index. Out of these 51 companies, 27 companies are still part of the Nifty 50 index as of December 30, 2021, as per nitfyindices.com.
It would also be worthwhile to highlight that the Nifty Next 50 index has earned a CAGR (Compound Annual Growth Rate) of 56.8%, 13.1% and 15.7% in the last 1 year, 5 years and 10 years, respectively, according to Bloomberg as on September 30, 2021.
Nifty Next 50 could offer a more diversified investment option than the Nifty 50
The Nifty Next 50 TRI (Total Return Index) has outperformed the Nifty 50 TRI in recent years due to a more balanced sector allocation among other reasons. The top four sectors in the Nifty Next 50 index comprise only 57% of the index, which is much lower than Nifty 50’s 78%, as per niftyindices.com.
In addition, while the Nifty 50 index offers higher exposure to well-discovered sectors, the Nifty Next 50 index is more diversified with exposure to emerging sectors like renewable energy. While the Nifty 50 index has a significant exposure to the banking sector, the Nifty Next 50 index offers exposure to non-banking financial businesses like asset management, general insurance and credit cards. The Nifty Next 50 index also has a considerably higher weightage of 11.5% in healthcare and pharma industries against 3.3% of the Nifty 50 Index, as per niftyindices.com. This is in alignment with the country looking to boost its healthcare infrastructure as it continues to tackle the COVID-19 pandemic.Moreover, the Nifty Next 50 Index has a lower stock concentration compared to the Nifty 50 index. While the top 10 holdings comprise 58.5% of the Nifty 50 index, the top 10 holdings of the Nifty Next 50 index constitute only 31.7% (check out the table below for insights). As such, it could be argued that the Nifty Next 50 index offers a more balanced representation of the largest companies of the country.
|Top 10 Holdings|
|Nifty 50||Nifty Next 50|
|Reliance Industries Ltd.||10.56%||Apollo Hospitals Enterprise Ltd.||4.71%|
|HDFC Bank Ltd.||8.87%||Avenue Supermarts Ltd.||4.27%|
|Infosys Ltd.||8.62%||Adani Enterprise Ltd.||3.76%|
|ICICI Bank Ltd.||6.72%||Info Edge (India) Ltd.||3.69%|
|Housing Development Finance Corporation Ltd.||6.55%||Vedanta Ltd.||3.62%|
|Tata Consultancy Services Ltd.||4.96%||Adani Green Energy Ltd.||3.20%|
|Kotak Mahindra Bank Ltd.||3.91%||ICICI Lombard General Insurance Company Ltd.||3.01%|
|Larsen & Toubro Ltd.||2.89%||Adani Transmission Ltd.||3.01%|
|Hindustan Unilever Ltd.||2.81%||Godrej Consumer Products Ltd.||2.87%|
|ITC Ltd.||2.62%||Dabur India Ltd.||2.85%|
Source/Disclaimer: niftyindices.com. Details as on Nov 30, 2021. The stocks/sectors mentioned above are used to explain a concept and are for illustrative purposes only. Past performance may or may not be sustained in the future.
The ‘Nifty 50 + Nifty Next 50’ advantageBoth Nifty 50 and Nifty Next 50 indices can be considered integral parts of the large-cap allocation in India. While the former tends to outperform in polarised markets, the latter outperforms the Nifty 50 when the broader market performs well. A blended portfolio with exposure to both Nifty 50 and Nifty Next 50 could, therefore, offer better risk-adjusted returns over the long term (see table below for more details). In other words, investments in both Nifty 50 and Nifty Next 50 indices could complete the Indian large-cap allocation of an investor’s portfolio.
|Nifty 50 TRI||Nifty 50 + Nifty Next 50 TRI (50:50)|
Disclaimer: Return-risk ratio = Annualized Return/Annualized Volatility | Source: Bloomberg | Latest data available as on Sep 30, 2021. The stocks/sectors mentioned above for illustration purposes only. Past performance may or may not be sustained in the future.
Why you may want to invest in the Navi Nifty Next 50 NFO
The NFO for the Navi Nifty Next 50 Index Fund would allow investors to gain the benefits of index funds at offer prices. The NFO opens on January 1, 2022 and closes on January 14, 2022, after which investors have to purchase units at NAV (Net Asset Value).Here are some of the major benefits of this scheme:
The minimum application amount to the NFO is Rs. 500 and in multiples of Rs. 1 thereafter. Investors can login to the Navi Mutal Fund website for more information about the NFO, and can invest in it via popular platforms such as Groww, Zerodha, Paytm Money, INDmoney and Kuvera.
That being said, investors should be aware that past returns may or may not be sustained in the future, and would be well-advised to check their risk tolerance, investment horizon and financial objectives before investing in any mutual fund.
Disclaimer: Mutual funds are subject to market risks. Please read the offer document carefully before investing.