ABSL Nifty 50 EW Index Fund NFO offers equal weight investing

Staff Writer   /   May 25, 2021

Aditya Birla Sun Life Mutual Fund (ABSLMF) has launched Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund, an open ended scheme tracking the Nifty 50 Equal Weight TR Index. The NFO opened on May 19, 2021 and closes on June 2, 2021. This is a unique fund and this sub-type of funds is very limited presently. Let’s know more about it

What’s special in an index fund

Most people would think there is nothing unique about an index fund. But this equal weight index fund is different.

All constituents of the Nifty 50 Index are part of the Nifty 50 Equal Weight index. But unlike Nifty 50 which is based on market capitalisation and higher the market cap of a company higher the weightage of the stock in the index, the equal weight index treats all of them equally irrespective of their relative market cap.

This approach means the index keeps the allocation of the constituent companies at ~2% each. As a result there is broader sectoral representation and more diversification at a stock level. This reduces the concentration risk significantly at an individual stock and overall sector level.

Also, profits are pronounced. Nifty 50 stocks like JSW Steel, Tata Steel, Tata Motors gave over 200% return over the last year. Their combined weightage in Nifty 50 is only ~2.5% as compared to ~6% in the Nifty 50 Equal Weight index.

The index is automatically re-constituted every 6 months in line with the Nifty 50, allowing for natural selection of top movers. Additionally, the portfolio is rebalanced on a quarterly basis, leading to smart and periodic profit booking. The way it works is, since each stock is to have a 2% allocation, if any stock’s allocation increases as a result of market action then on the rebalancing date, the excess percentage of the stock will be sold leading to an automatic profit booking. The proceeds will be re-invested into stocks which have fallen and have less than 2% allocation.

Fund-house speak

Commenting on the launch of the new fund, A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC Limited said, “Equal allocation to the 50 large cap companies can benefit from growth opportunities across the board rather than relying on the performance of few heavyweights. With a period of broad based economic recovery on the anvil, high growth sectors like cement and cement products, pharma, metals and services, are better represented in the Nifty 50 Equal Weight Index.”

Over time, as markets and economy grow, Bala expects the Equal Weight (EW) Index to do better than Nifty 50. It has outperformed the Nifty 50 over short and long term periods. For e.g., in the last year ended May 4, 2021, the Nifty 50 Equal Weight Index has outperformed Nifty 50 Index with 21.9% returns against 15.2%, over short and long-term.

Infact some of the stock level polarisation in the base index that we saw in 2018-19 is already reversing sharply.

Why you should invest

In the above backdrop, Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund is an intelligent and simple investment option that provides opportunity to capitalise on broad based economic growth in the country.

The fund will provide portfolio exposure to high growth potential of equity sector by investing in the Top 50 large cap companies on the NSE.

Equal weightage makes for a more diversified portfolio – reducing concentration and sectorial risk for investors.

Equal weightage gives uniform opportunity to all stocks in the portfolio to shine in times of growth.

‘Smart’ investing strategy allows for periodic booking of profits in stocks that have grown and the proceeds will be re-invested into stocks which have fallen & have less than 2% allocation.

Apart from the ABSL fund, the equal weight index fund has 3 other options: Principal Nifty 100 Equal Weight Fund, DSP Equal Nifty 50 Fund and Sundaram Smart NIFTY 100 Equal Weight Fund.

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