Now, SBI MF launches Nifty 500 Index Fund: should you invest?

SBI Mutual Fund on Monday launched SBI Nifty 500 Index Fund, an open-ended scheme replicating/ tracking Nifty 500 Index, as part of its passive offering. The New Fund Offer (NFO) period for the scheme is September 17 – 24, 2024.

The NFO is an opportunity to invest in a single index, Nifty 500 index, which includes the top 500 stocks by market capitalization covering the large-cap, mid-cap and small-cap segments, the company said in a statement. 

The Nifty 500 Index provides a holistic view of the Indian equity market as it covers approximately 92.1% of the full market capitalization of all the listed companies on NSE (as of March 2024.)

 Index funds, such as the Nifty 500, are passively managed and seek to replicate the performance of the underlying index. This is suitable for individuals who do not wish to actively select equities or time the market.
 

 

Investors with moderate risk tolerance: The Nifty 500 comprises a blend of large, mid, and small-cap companies. While it offers growth opportunities, it also entails some risk compared to funds focused solely on large-cap companies.

What is this NFO all about?

An open-ended mutual fund scheme that tracks the Nifty 500 Index.

This means the fund invests in the same 500 companies as the Nifty 500 Index, aiming to mirror its performance.

What are the benefits?

Diversification: Invest in a broad range of Indian companies in one go.

Low Cost: Index funds generally have lower fees compared to actively managed funds.

Transparency: The fund's holdings are publicly available and easy to understand.

What are the key details?

Two plans: Regular and Direct (with lower fees)

Two investment options: Growth (reinvest earnings) and Income (receive regular payouts)

Exit load

• For exit on or before 15 days from the date of allotment – 0.25%

• For exit after 15 days from the date of allotment – Nil

The scheme would primarily invest a minimum of 95% and a maximum of 100% of its assets in stocks comprising the Nifty 500 Index and up to 5% in Government securities (like G-Secs, SDLs, treasury bills and any other like instruments as specified by the RBI from time to time), including triparty repo and units of liquid mutual fund. The minimum application amount required is of Rs 5,000 and in multiples of Re. 1 thereafter. Investments can also be done through daily, weekly, monthly, quarterly, semi-annual, and annual SIP (Systematic Investment Plan). 

The investment objective is to provide returns that correspond to the total returns of the securities as represented by the underlying index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.

 “As the largest fund house in the country, we continue to build on our strong franchise in the passive investment space, in addition to our actively managed funds. The SBI Nifty 500 Index Fund offers investors the opportunity to invest in companies across the entire Indian economy, encompassing over 92% of the total market cap of all listed companies. Investors who seek exposure to not only established large cap companies but also mid and small caps, passively and at a relatively lower cost can consider investing in this fund," said Shamsher Singh, MD & CEO, SBI Funds Management Limited.

The fund manager for SBI Nifty 500 Index Fund would be  Viral Chhadva who has been associated with the fund house since December 2020 and currently manages SBI Nifty50 Equal Weight Index Fund and SBI Nifty50 Equal Weight ETF.

 "The SBI Nifty 500 Index Fund is an opportunity for those who want to invest in one fund encompassing established (large caps), growing (mid-caps) and young (small cap) businesses. What you get in effect is a proxy to the country’s listed universe of companies, spanning various sectors and a multicap-based offering in one index fund," said D P Singh, DMD & Joint CEO SBI MF.

SBI Mutual Fund is a Joint Venture between State Bank of India, India’s largest bank, and Amundi, Europe’s largest asset manager and one of the world’s leading asset management companies. 

Is it better than a Nifty50 Index?

"While the Nifty 50 offers stability and reliable dividends, the Nifty 500 index fund provides a wider market exposure and growth opportunities. Nifty 500 investors require better understanding and research before investments as it includes 400 mid-and small-cap companies, where investment risks are considerably higher as compared to the 100 large-cap companies. Note that an index such as this is weighted towards the 100 large companies that would form over 70% of the index, while the other 400 smaller companies would form the rest.
 

Investors looking to invest in a passive fund and capital appreciation over long horizons with diversification may consider such funds if they want exposure to the entire stock market through a single instrument," said Adhil Shetty, CEO of Bankbazaar.com.

 However, you must remember that you must consider this option when you have a high to very high-risk appetite. If you’re looking to get started with equity, consider starting small, developing a familiarity with risks and rewards, and scaling your investment as appropriate for your risk profile and investment goals.