ICICI Pru Mutual Fund Firm is about to introduce the ICICI Prudential Nifty 500 Index Fund. Whereas many consider that the Nifty 500 represents a well-diversified index, is that basically the case?
Within the present market, an rising variety of buyers are leaning in direction of low-cost index funds, main mutual fund corporations to capitalize on this development by introducing a big selection of latest index fund selections.
It’s vital to do not forget that not each Index Fund is critical for our funding technique. The label “Index Fund” alone doesn’t obligate us so as to add them to our portfolio. This precept additionally holds true for the ICICI Prudential Nifty 500 Index Fund NFO.
ICICI Prudential Nifty 500 Index Fund NFO – Do you have to make investments?
Few months again, I reviewed this Nifty 500 Index, and the identical is out there at “Ought to we spend money on Nifty 500 Index Fund?“.
What’s the Nifty 500 Index?
The Nifty 500 index represents the highest 500 corporations chosen based mostly on full market capitalization from the eligible universe. Nifty 500 Index is computed utilizing the free float market capitalization methodology, whereby the extent of the index displays the full free float market worth of all of the shares within the index relative to a specific base interval.
The Nifty 500 Index was created with a beginning worth on January 1, 1995, and is rebalanced each six months. As of April 30, 2024, the sector allocations are as follows: Monetary Companies at 29%, Oil, Fuel, and Consumable Fuels at 9%, IT at 8.8%, Car and Auto Elements at 7%, and FMCG at 7%.
Let’s look at the highest shares within the Nifty 500 index. A notable 58% of those shares are a part of the Nifty 50 index, whereas round 14% come from the Nifty Subsequent 50 Index. Because of this a considerable 72% of the Nifty 500 shares are from Nifty 100. The remaining 28% of shares are from the mid and small-cap sectors.
In such a scenario is it smart to take a threat of investing within the Nifty 500 Index? Allow us to dig into the final 21 years’ information to seek out the solutions. For our research function, allow us to take the info from 1st Jan 2003. Why from 2003? As a result of the Nifty 100 TRI information is out there from 1st Jan 2003. Therefore, I’m contemplating the info of Nifty 500 TRI, Nifty 100 TRI, and Nifty 50 TRI from 1st Jan 2003.
Do do not forget that as of now, Motilal Oswal is providing two funds -one as an ETF and one other as an Index Fund. Now this ICICI Pru is launching this Nifty 500 Index Fund.
The motion from 1st Jan 2003 seems to be like under.
Nevertheless, this may not present us with an correct illustration of volatility and superior efficiency. Subsequently, let’s analyze the three Indices’ rolling returns for 1 12 months, 3 years, 5 years, and 10 years. Moreover, we should always look at the constant outperformance of the Nifty 500 TRI Index in comparison with each the Nifty 100 TRI and the Nifty 50 TRI.
NIFTY 500 TRI Vs NIFTY 100 TRI Vs NIFTY 50 TRI – 1 Yr Rolling Returns
It is very important observe that there’s minimal variation among the many three, aside from a shorter timeframe. However, when analyzing the constant outperformance of the Nifty 500 TRI Index over the Nifty 100 TRI Index and Nifty 50 TRI Index, it’s evident that the Nifty 500 TRI Index outperformed the Nifty 100 TRI Index for roughly 54% of the time by way of one-year rolling returns. Nevertheless, when evaluating the Nifty 500 TRI Index to the Nifty 50 TRI Index, the outperformance is even higher, with a margin of 56%.
Nevertheless, allow us to not choose the outperformance by taking a look at simply 1-year rolling returns.
NIFTY 500 TRI Vs NIFTY 100 TRI Vs NIFTY 50 TRI – 3 Yrs Rolling Returns
The current outperformance of Nifty 500 TRI post-2022 might be simply visualized now. That is primarily as a result of efficiency of mid and small-cap shares. Nevertheless, the period of this outperformance stays unsure. Upon analyzing the consistency between the Nifty 500 TRI Index and the Nifty 100 TRI, it’s evident that the previous outperformed the latter 47% of the time. Equally, the Nifty 500 TRI Index outperformed the Nifty 50 TRI 56% of the time.
Nevertheless, allow us to not choose the outperformance by taking a look at simply 3 years of rolling returns.
NIFTY 500 TRI Vs NIFTY 100 TRI Vs NIFTY 50 TRI – 5 Yrs Rolling Returns
It is very important point out that the distinction will not be obvious when trying on the rolling returns over a 5-year interval. Nevertheless, when analyzing the consistency of the Nifty 500 TRI Index’s outperformance in comparison with the Nifty 100 TRI Index, it’s fairly astonishing. The Nifty 500 TRI Index outperformed the Nifty 100 TRI Index in solely 37% of circumstances, and when in comparison with the Nifty 50 TRI Index, it was 38%. The extent of constant outperformance decreased considerably from the 1-year and 3-year intervals to the 5-year interval.
NIFTY 500 TRI Vs NIFTY 100 TRI Vs NIFTY 50 TRI – 10 Yrs Rolling Returns
In analyzing the 10-year rolling returns, it’s evident that the extent of outperformance consistency has considerably decreased. The Nifty 500 TRI Index surpassed the Nifty 100 TRI by 32% on a number of events. Conversely, the Nifty 500 TRI Index outperformed the Nifty 50 TRI Index by 62% on quite a few events. This outperformance is basically attributed to the Midcap and Smallcap sectors, significantly lately.
Conclusion – Don’t be influenced by the current efficiency of Midcap and Smallcap indices when deciding on an Index that has publicity to those sectors. Upon reviewing historic information, it turns into evident that investing within the Nifty 500 Index will not be essentially the most useful choice. Choosing an easier Nifty 50 together with Nifty Subsequent 50 or Nifty 100 Index would suffice for diversification functions. In truth, even the Nifty 500 Equal Weight can be not needed for you (Check with my earlier put up “Nifty 500 Equal Weight Index Vs Nifty 500 Index – Which is the most effective?“. Therefore, I strongly counsel you don’t think about current efficiency if mid and small cap and attempt to add this fund in your portfolio. As an alternative, search for precise want then go forward.
