ICICI Prudential Mutual Fund has announced the launch of ICICI Prudential Nifty50 Equal Weight Index Fund. The scheme will invest in the constituents of the Nifty50 Equal Weight Index. The new fund offer (NFO) opened for subscription on Wednesday and will remain open till 28th September.
As compared to the Nifty 50 index, an equal weight index is less concentrated in terms of the top five sectors.
For example, in the Nifty 50 Index, Reliance Industries Ltd’s weightage is 11.69%, followed by HDFC Bank Ltd at 8.37%, ICICI Bank Ltd (7.92%) and Infosys Ltd (7.02%).
However, in Nifty50 Equal Weight Index, Reliance Industries is weighted at 1.85%, HDFC Bank at 1.92%, Infosys at 1.77% and ICICI Bank at 2.17%. The benchmark index is re-balanced on a quarterly basis and reconstituted on a semi-annual basis.
Further, an equal weight index has empirically higher dividend yield as compared to a market capitalization weighted index as it allocates funds equally to its components.
Data shows that Nifty50 Equal Weight Index has grown at 14.15% annually since the beginning of 2005. For example, Rs10,000 invested in Nifty50 Equal Weight Index in 2005 would be worth Rs1,03,683 by end of August 2022.
Further, Nifty50 Equal Weight Index has outperformed Nifty 50 Index in five out of last 10 calendar years
According to the fund house, the scheme exhibits smart-beta characteristics as the index intends to have no size bias.
Speaking on the launch of the product, Chintan Haria, head-product development and strategy, ICICI Prudential AMC said, “Since indices perform differently under variable market conditions, it is prudent to diversify across indices with different weightage methodology. Nifty50 Equal Weight Index is less concentrated in the top five sectors as compared to the Nifty 50 Index, thus providing an excellent diversification opportunity. Also, there is no size bias as the index tries to reduce the impact of bigger companies on the index performance."
The minimum investment during the NFO period would be Rs5,000 and in the multiples of Re1, thereafter. Fund managers to the scheme are Kayzad Eghlim and Nishit Patel.