News magazine | Icici Prudential Nifty50 Equal Weight Index Fund: What You Need to Know

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By Anshul IST (Released)

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An equal-weighted index has an empirically higher dividend yield than a market-cap-weighted index because it distributes funds evenly among its constituents. Here’s everything you need to know about the NFO

ICICI Prudential Mutual Fund recently announced the launch of the ICICI Prudential Nifty50 Equal Weight Index Fund. The New Fund Offering (NFO) invests in the constituents of the Nifty50 Equal Weight Index and will close for subscription on September 28, 2022.

About the fund

The program will invest in the constituents of the Nifty50 Equal Weight Index, which consists of the top 50 stocks in India based on market capitalization.

About the index

The Nifty 50 Equal Weight Index has grown by 14.15% per year since the start of 2005. This means that 10,000 rupees invested in the Nifty50 Equal Weight Index in 2005 is worth 1,03,683 rupees by the end of August 2022 , according to the CMA.

This index would be less concentrated than the benchmark Nifty 50 index in terms of the distribution of the 5 main sectors. For example, in the Nifty 50 index, HDFC Bank’s weighting is 8.37%. However, in Nifty50 Equal Weight Index, it is weighted at 1.92%.

This means that, unlike the Nifty 50 index, the Nifty 50 Equal Weight index is more diversified.

(Source: ICICI Prudential)

The Nifty 50 Equal Weight Index has grown by 14.15% per year since the start of 2005. This means that 10,000 rupees invested in the Nifty50 Equal Weight Index in 2005 is worth 1,03,683 rupees by the end of August 2022 , according to the CMA.

(Source: ICICI Prudential)

The equally weighted Nifty50 index has outperformed the Nifty 50 index in 5 of the past 10 calendar years, according to the CMA.

Who should invest?

The Nifty50 focuses on financial services – IT, oil, gas and consumable fuels, consumer packaged goods, automobiles and automotive components. Another differentiating factor is that an equal-weighted index has an empirically higher dividend yield than the Nifty 50 index because it allocates funds equally to its constituents.

“So this index fund is suitable for investors who want to invest in large capitalization funds/indexes,” said Rajiv Bajaj, Chairman and Managing Director of Bajaj Capital Ltd, in an interview with CNBC-TV18.com.

Chintan Haria, head of product development and strategy at ICICI Prudential AMC, also believes this provides a great opportunity for diversification. Additionally, there is no size bias as the index attempts to reduce the impact of large companies on index performance.

“Furthermore, the equal-weighted index has an empirically higher dividend yield than a market cap. The scheme exhibits characteristics of smart beta because the index does not intend to skew size. It will allow non-deposited account holders to seek exposure to an equal-weighted index fund.The index is less concentrated and helps provide portfolio stability,” Haria said.



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