NFO Alert: DSP Nifty Top 10 Equal Weight Index Fund review: DSP Mutual Fund has launched India’s first Nifty Top 10 Equal Weight Index Fund and ETF New Fund Offer (NFO). This will be the first such mutual fund scheme in the country, which will invest equally in only the top 10 companies of Nifty 50. This strategy of investing only in the top 10 companies of the country according to market cap looks very interesting at first glance. But can investing in it really be beneficial and how right will it be for common investors to invest in this scheme in terms of returns and capital protection? We will discuss the answers to these questions later, but first let us know the special things related to this NFO.
Meaning of Nifty Top 10 Equal Weight Index
Nifty Top 10 Equal Weight Index tracks the performance of the top 10 stocks selected from Nifty 50 based on six-month average free-float market capitalization. In this index, the weightage of each stock is equal. The index is reconstituted on a half-yearly basis and rebalanced once in 3 months. The top 10 stocks currently included in the index are – Axis Bank, HDFC Bank, Hindustan Unilever, ICICI Bank, Infosys, ITC, Kotak Mahindra Bank, Larsen & Toubro, Reliance Industries and TCS. The total market cap of these companies is Rs 87.76 lakh crore, which is equal to 40 percent of the market cap of the top 50 companies of the country. The five sectors included in the index and their weightages are: Financial Services: 36.61%, IT: 22.16%, FMCG: 21.48%, Construction: 10.01% and Oil & Gas: 9.74%.
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Highlights of NFO
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This fund (DSP Nifty Top 10 Equal Weight Fund) has been launched to invest equally in the top 10 companies of Nifty 50.
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The shares of these top 10 companies are currently considered cheap in terms of valuation.
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The fund house that launched the scheme believes that the valuation of these shares may increase in the future, which will result in profit.
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Positive things about NFO
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This fund (DSP Nifty Top 10 Equal Weight Fund) invests only in large and established companies, which are expected to have more stability.
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The fund’s money will be invested equally in all 10 companies, which can reduce the risk.
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Past data shows that Nifty’s top 10 stocks may perform well after remaining weak for a few years.
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The historical performance of the Nifty Top 10 Equal Weight Index is a better indicator. The index has outperformed the broader market in 9 of the last 16 years. Moreover, the return on equity (RoE) of this index is 1.5 times higher than that of the Nifty 500 index. It is also worth mentioning that about 49% of the total profit of Nifty 50 comes from these top 10 stocks, which shows their important role in the market.
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Challenges and Risks
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Due to the entire investment being concentrated in only 10 companies, it may be difficult to take advantage of other opportunities available in the broader market.
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The concept of this fund is such that there is a possibility of greater dependence on the banking and IT sectors.
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Excessive dependence on specific sectors reduces the diversification of the portfolio and increases the risk.
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The top 10 stocks of Nifty 50 have not performed well in the last 4 years.
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Should common investors invest money?
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If you want to invest in large and stable companies, then this fund (DSP Nifty Top 10 Equal Weight Fund) can be a better option for you.
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If you want to invest in the broader market, funds that track indices like Nifty 50 or Nifty 500 may be better for you.
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You can add this NFO to your existing portfolio as an additional investment option.
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If you think that the top 10 stocks of Nifty 50 are undervalued right now and can perform well in the future, then you can consider investing in this NFO.
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Interesting themes of risk
This fund is an interesting thematic investment option, but it also carries risks. For most investors, especially those who are new, broad-based index-based mutual funds with long-term track records may be safer. However, if you want to increase the share of big companies in your portfolio and you trust these top 10 stocks, then you can consider investing in it. Before making any investment decision, remember that any investment made in equity mutual funds is associated with market risk. Therefore, you should invest only after understanding your risk profile.
(Disclaimer: The purpose of this article is only to provide information, not to give investment advice. Market fluctuations have a direct impact on the returns of mutual funds. Take any investment decision only after understanding the scheme thoroughly and taking the advice of your investment advisor.)
