My Account
Follow us on:
Powered By
Find & Invest in bonds issued by top corporates, PSU Banks, NBFCs, and much more. Invest as low as 10,000 and earn better returns than FD
Invest Now
Powered By
Unlock Your Trading Potential: Trade like Experts with SEBI registered creators, Learn from Courses & Webinars by India’s Finest Finance Experts.
Invest Now
AMBAREESH BALIGA
Fundamental, Stock Ideas, Multibaggers & Insights
Subscribe
CK NARAYAN
Stock & Index F&O Trading Calls & Market Analysis
Subscribe
SUDARSHAN SUKHANI
Technical Call, Trading Calls & Insights
Subscribe
T GNANASEKAR
Commodity Trading Calls & Market Analysis
Subscribe
MECKLAI FINANCIALS
Currency Derivatives Trading Calls & Insights
Subscribe
SHUBHAM AGARWAL
Options Trading Advice and Market Analysis
Subscribe
MARKET SMITH INDIA
Model portfolios, Investment Ideas, Guru Screens and Much More
Subscribe
TraderSmith
Proprietary system driven Rule Based Trading calls
Subscribe
Curated markets data, exclusive trading recommendations, Independent equity analysis & actionable investment ideas
Subscribe
Curated markets data, exclusive trading recommendations, Independent equity analysis & actionable investment ideas
Explore
STOCK REPORTS BY THOMSON REUTERS
Details stock report and investment recommendation
Subscribe
POWER YOUR TRADE
Technical and Commodity Calls
Subscribe
INVESTMENT WATCH
Set price, volume and news alerts
Subscribe
STOCKAXIS EMERGING MARKET LEADERS
15-20 High Growth Stocks primed for price jumps
Subscribe
The UTI Nifty 50 Equal Weight Index Fund (UNE50) is an open-ended scheme replicating or tracking NIFTY50 Equal Weight Total Return Index (NE50). Put simply, this scheme will attempt to offer returns in line with the underlying index before accounting for expenses and tracking error.
Sharwan Kumar Goyal will be managing this scheme. The index allocates an equal amount of money (2 percent) to each stock in Nifty 50. The weightage is rebalanced every quarter.
What works?
The index consists of Nifty 50 stocks. These are large companies with an established track record. For those who wish to stay away from small and mid-sized companies, where you could end up investing in companies or management with little or no track record, this sort of a large-cap fund offers solace. It also reduces your portfolio’s volatility because large and well-established companies are among the least volatile on the stock markets.
ALSO READ: NFO review: Edelweiss MF’s new multi-asset fund is debt-focussed with indexation taxation benefit
As all stocks are equally represented in the NE50, investors are relatively less exposed to sectoral or stock-specific concentration risk. For example, the Nifty 50 index has 37 percent allocation to the financial sector, whereas in case of Nifty equal weight 50 the same gets capped at 22.63 percent. Since each stock’s weight is capped at 2 percent at the end of each quarter, the profits are booked periodically.
When the equity markets see a broad-based rally, the equal weight index typically does better than the market cap-based Nifty 50 index.
Abhay Mathure, a Mumbai-based mutual fund distributor, is of the opinion that NE50 can be a better bet than investing in Nifty 50. “If a stock with a large weight in Nifty 50 underperforms, the index returns suffer. However, that is not the case with NE50 as all stocks are equally represented,” he says.
What does not work?
If a particular sector or a handful of stocks, with large allocation in Nifty, are doing well, the Nifty 50 tends to do better than the NE50. Quarterly rebalancing ensures that the winners are trimmed from time to time and relatively less-performing companies are bought.
ALSO READ: NPS Equity funds shine, but struggles to beat broader indices
The churn of the portfolio of NE50 tends to be higher than that of the Nifty 50 index.
While considering index investing, Nitesh Buddhadev, founder of Nimit Consultancy, prefers to stick to index funds which track time-tested indices, based on market capitalisation over equal weight strategy. “Indexing in market cap-based index is akin to momentum investing wherein we invest more in stocks doing well. Also, equal weight index tend to charge more than the Nifty 50 index,” he adds.
What should you do?
Over the last three and five years ended June 1, 2023, DSP Nifty Equal Weight Nifty 50 index fund (the oldest scheme tracking NE50 index) has given 28.65 percent and 11.76 percent, respectively. Compared to this, large-cap equity funds have given 23.36 percent and 11.56 percent, respectively, as per Value Research data.
Nippon India ETF Nifty BeES that tracks Nifty 50 index has given 24.81 percent and 12.82 percent, respectively, over the same period of time.
ALSO READ: Holidays booked with foreign tour operators escape 20% TCS, but Indian tour operators must collect this tax
For all those who want to avoid fund manager risk and are still looking for something better than a traditional passive investing approach, this strategy with equal allocation to Nifty 50 constituents may find it interesting. While selecting an index fund, you should pay heed to the expense ratio and the tracking error. Lower the better it is for the investor.
UNE50 is not the first of its kind. Other fund houses, like Aditya Birla Sun Life, HDFC, ICICI and DSP, offer it as well. Even if you are keen to invest in the equal weight strategy, ideally opt for a systematic investment plan to reduce timing risk.
Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express writtern permission of moneycontrol.com is prohibited.
You are already a Moneycontrol Pro user.
Access your Detailed Credit Report – absolutely free
UTI Nifty 50 Equal Weight Index Fund NFO: Should you invest? – Moneycontrol
Leave a comment