Nippon India AMC launches passive Flexi-cap FOF
Nippon Life India Asset Management (NAM India), which was earlier known as Reliance Nippon Life Asset Management and the asset manager of Nippon India Mutual Fund (NIMF), has announced the launch of Nippon India Passive Flexicap FoF. It is an open-ended fund of funds scheme, investing in the units of ETFs/Index Funds of Nippon India Mutual Fund. The new fund offer opens for subscription on December 10, 2020, and closes on December 24, 2020. The scheme reopens for the ongoing subscription and redemption from January 08, 2021.
The scheme’s performance will be benchmarked against Nifty 500 TRI.
Objective: The investment objective of the scheme is to seek long-term capital growth by investing in the units of ETFs/Index Funds of Nippon India Mutual Fund. However, there can be no assurance or guarantee that the investment objective of the scheme will be achieved.
Strategy: To achieve its investment objective, the Fund of Funds scheme will predominantly invest in the units of ETFs or Index Funds of Nippon India Mutual Fund. The investment will be based on the average allocation of all active multi-cap funds in the industry into large, mid, and small-cap stocks as provided by CRISIL every month. For example, currently, multi-cap funds have a large allocation towards large-cap dedicated stocks and this FoF will allocate more of its corpus into a large-cap index fund or ETF. Going ahead, if the multi-cap funds increased their allocation towards mid-cap dedicated stocks, the FoF will invest in the mid-cap dedicated ETFs or the index fund managed by NAM. The rebalancing will be done on a monthly basis. The scheme will invest 95 per cent of its assets into equity.
In a nutshell, it is the active management of passively managed funds based on the collective intelligence of the market.
Fund manager: The scheme will be managed by Mehul Dama, Fund Manager & Dealer – ETF. The performance of the scheme will be benchmarked against Nifty 500 TRI. Other funds managed by the fund managers include Nippon India ETF PSU Bank BeES, Nippon India ETF Gold BeES, Nippon India ETF Infra BeES, Nippon India ETF Shariah BeES, Nippon India Index Fund - Nifty Plan, Nippon India Index Fund - Sensex Plan, Nippon India ETF Dividend Opportunities, Nippon India ETF Consumption, Nippon India ETF Nifty 100, Nippon India ETF Sensex, Nippon India ETF NV20, Nippon India Gold Savings Fund, Nippon India ETF Nifty Midcap 150, Nippon India Junior BeES FoF, Nippon India ETF Nifty IT, Nippon India Nifty Smallcap 250 Index Fund.
Our recommendation: The NFO seems to offer something that is right now not present in the market. So, does it make sense to apply in the NFO? Our suggestion is to avoid this NFO for a couple of reasons. First, the expense ratio of the fund can go up to 1 per cent, which will be in addition to the expense ratio being charged by the funds where this FoF will be investing. The expense ratio is inversely proportional to the future return of the funds. Besides, you will not have any control or flexibility to decide your asset allocation. If the multi-cap funds have increased their allocation towards mid-cap dedicated stocks, this fund will also increase its allocation towards mid-cap funds, irrespective of your risk appetite. This may not be suitable for you. Another problem for an investor is that he will be investing in the funds managed by only one fund house, which is against the principle of diversification. Hence, you can skip the issue.