NFO Review: Tata AMC’s new index fund will focus on the top 7 business houses of the country, should you invest?

Tata BSE Select Business Groups Index Fund NFO : The New Fund Offer (NFO) of Tata BSE Select Business Groups Index Fund is open for subscription and investments can be made in it till December 9, 2024. The amount deposited through this new fund offer will be invested in the stocks of top 30 companies associated with the 7 largest business houses of the country. The aim of this NFO is to give stable and better returns to its investors in the long term. But should you invest in this fund?

NFO investment strategy

The objective of this fund is to track the performance of BSE Select Business Groups Index (TRI). This index is based on 30 companies selected from the BSE 500 index, representing seven large business groups. These business groups are: Tata Group, Reliance Group, Larsen & Toubro Group, Adani Group, Aditya Birla Group, Mahindra Group and Jindal Group. The weightage of each of these groups in the index can be up to a maximum of 23 percent. The largest company from each group is selected on the basis of 6-month average free-float market capitalization. This index currently represents 12 key sectors such as automotive, construction, energy, metals, and IT. But companies related to financial services are not included in this. 95% to 100% of the NFO funds will be allocated in shares of index related companies, while 0% to 5% can be allocated in debt and money market instruments.

Anand Varadarajan, Chief Business Officer, Tata Asset Management Company, said that Tata BSE Select Business Group Index Fund offers investors a unique opportunity to participate in the growth of India’s leading groups. He said that investors can avail the benefits of investing in 7 top business groups.

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Highlights of Tata BSE Select Business Groups Index Fund

• type of fund: Open-ended index fund.

• benchmark index: BSE Select Business Groups Index.

• investment period: 25 November 2024 to 9 December 2024.

• minimum investment: Rs 5,000.

• MinimumSIP: Rs 150

• fund manager: Kapil Menon.

• exit load: 0.25% on redemption within 15 days, nothing after 15 days

• Risk Level: Very High

• Invest in these business groups: Tata, Reliance, Adani, L&T, Aditya Birla, Mahindra, and Jindal.

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What is better in TATA’s new index fund?

1. Exposure to leading companies: Investment in top companies associated with major business houses of the country.

2. diversified portfolio: Investment in 12 sectors, which reduces risk.

3. Low-Cost Investment: Being a passive fund, the expense ratio is expected to be low.

4. Blue-Chip Stability: Investing in companies with strong fundamentals.

5. Transparency: The structure of the fund is similar to the structure of the index.

6. better for long term: The stocks in which the money raised through this NFO will be invested are directly linked to the economic development of the country.

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Risk factors related to NFO

1. concentration risk: Focus on only seven business groups.

2. sector exclusion: The absence of any company related to financial services reduces the diversification of the portfolio.

3. market risk: Market turmoil can affect the performance of the fund.

4. tracking error: There may be differences in the performance of the index and the fund due to operational challenges.

5. lack of flexibility: Being a passive fund, fund managers cannot change their strategy according to market fluctuations. Therefore, if the index falls, the returns of the fund are sure to decline.

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Should you invest?

If you want to invest in blue-chip companies for the long term and expect stable returns, then this fund may be right for you. For investors who have invested separately in the financial services sector, this fund can be a good means of diversification. But investors who do not want to take much risk should stay away from this fund, because there is market risk associated with it.

(Disclaimer: The purpose of this article is only to provide information and not to give advice on investing in any scheme. Take investment related decisions only after taking the advice of your investment advisor.)