Introduction

In today’s world, the quest for passive income has gained significant momentum. Individuals are increasingly turning to passive funds as a viable investment option. This trend has led to a remarkable surge in investment within these funds, with a staggering 182% increase in investor participation over the past three years, bringing the total investment to nearly ₹10 trillion. Mutual fund companies are stepping up their game by enhancing their offerings and launching innovative funds in the realm of passive investing.

Is There a Golden Opportunity Until September 4th?

In line with the growing interest in passive funds, Nippon India Mutual Fund has announced the launch of the Nippon India Nifty 500 Equal Weight Index Fund. This new fund offer (NFO) is set to open on August 21 and will close on September 4, 2024. It represents the first equal weight index covering the Nifty 500 universe. The equal weight index showcases a unique approach in stock market indices, where each component is assigned an equal weight, irrespective of the company’s market capitalization.

Global Interest in Equal Weight Funds

There has been substantial global interest in equal weight funds. For instance, the Invesco S&P 500 Equal Weight ETF boasts assets under management (AUM) of $58.4 billion, while the iShares MSCI USA Equal Weight ETF holds $803 million in AUM. Furthermore, the Goldman Sachs Equal Weight US Large Cap Equity ETF has AUMs of $735 million, illustrating the growing popularity and acceptance of this investment strategy.

The Stellar Returns from Nippon India’s Fund

The Nippon India Nifty 500 Equal Weight Index Fund mirrors the Nifty 500 Equal Weight Index TRI. All components of the Nifty 500 index will consistently be part of the Nifty 500 Equal Weight Index, with each component receiving equal weightage. This provides investors with a unique advantage of automatic profit booking, where profits from better-performing stocks are recognized on a quarterly basis.

Investing in this fund offers equal opportunity benefits, as every component in the index has an equal stake, allowing each component to showcase its performance. Additionally, investors gain broad exposure due to the Nifty 500’s three significant separate categories: Nifty 100 (Large Cap), Nifty Midcap 150 (Mid Cap), and Nifty Small Cap 250 (Small Cap), giving them access across various sectors of the market. The ratio of these three caps is maintained at 20:30:50.

Expert Insights

According to market analyst Jeet Jhaveri from Jhaveri Securities, the returns generated by such funds significantly contribute to their growing popularity. Typically, equal weight indices tend to outperform larger indices. Over the past year, the Nifty 500 Equal Weight Index has provided a compound annual growth rate (CAGR) of 56.6%, while the Nifty 500 index achieved a return of 39.2%. The corresponding CAGRs for the past three years have been 25.9% and 21%, respectively, demonstrating that the equal weight index has consistently exceeded the performance of the Nifty 500 index.

Conclusion

The increasing attractiveness of passive funds, particularly equal weight funds, has positioned them as a popular choice for investors seeking stable and potentially superior returns compared to traditional market-cap-weighted indices. With Nippon India’s latest fund offering, investors have the opportunity to participate in a lucrative investment avenue that promises balanced exposure and growth potential.