IDFC Mutual Fund announced the launch of a new fund, IDFC Nifty100 Low Volatility 30 Index Fund. This is an open-ended index mutual fund scheme that will invest in the 30 least volatile large-cap stocks to replicate the composition of the Nifty100 Low Volatility 30 Index.
The new fund offer (NFO) opens for subscription on September 15, 2022, and closes on September 23, 2022.
Investment objective of the fund
The investment objective of IDFC Nifty100 Low Volatility 30 Index Fund will be to replicate the composition of the Nifty100 low volatility 30 index. Thus, the fund will primarily be investing in securities that are part of the Nifty100 low volatility 30 index. The fund will invest in stocks in the same proportion and weightage as the benchmark index. It will aim to generate returns that closely match the total returns of the index, subject to tracking errors.
Why should you apply for the NFO?
Low volatility strategy: The low-volatility strategy that will be adopted by this scheme will offer investors an opportunity to likely gain high returns through equity investments. The fund will aim to reduce the impact of market volatility by investing in large-cap stocks that are part of the underlying index.
Passively managed: Since the fund will have a passive management strategy as it will invest in the composite stocks of the underlying index, there will be minimal intervention by the fund manager. This reduces the chances of errors and human discretion in stock selection.
Large-cap focus: The fund will have exposure to large-cap stocks that are part of the Nifty100 low volatility 30 index. This will help the fund in resisting market volatility and fetching positive long-term returns for investors.
Sectoral diversity: The Nifty100 low volatility 30 index consists of stocks from across different sectors. Since the IDFC index fund will invest in these stocks, it will give investors exposure to many sectors within the same portfolio. This will also aid in fetching better risk-adjusted returns.
Risks associated with NFOs
NFOs do not come with a historical performance track record. Additionally, since this is an equity-focused fund, investors must be cautious before making an investment. It is wise to consider factors such as personal risk appetite, investment goals, the current size of assets under management of the fund house, fund manager’s reputation, etc. before investing in NFOs.
|Scheme name||NFO details for IDFC Nifty100 Low Volatility 30 Index Fund|
|Type of Scheme||An open-ended index fund.|
|Category of the scheme||Index fund|
|Benchmark||Nifty100 Low Volatility 30 index|
|Plan options||Regular plan with growth option|
|Fund Manager||Nemish Sheth|
|Minimum Investment||Rs. 5,000 and multiples of 1 thereafter.|
|NFO Period||15 Sep 2022 – 23 Sep 2022|
|Risk level||Very high risk|
Where can you invest in the NFO?
Head over to the Fisdom App to invest in this NFO.
NFO (New Fund Offer) is launched by the Asset Management Companies (AMCs) to generate funds for launching a new mutual fund. These funds are then pooled to buy the shares or other securities as per the fund’s mandate or the guidelines based on which the fund is launched. NFOs are like IPOs where all the relevant details of the funds are provided at the time of their launch and the units of the fund are usually set at Rs. 10 per unit for a subscription. SEBI guidelines allow the NFOs to be active for a maximum period of 30 days following which the units of the fund are traded based on their daily NAV.
NFOs, at the time of their launch, are launched in two categories namely close-ended funds and open-ended funds. The details of each type of fund are mentioned below.
The majority of mutual funds are launched as open-ended funds. Investors can subscribe to the fund at the nominal rate (usually Rs. 10 per unit) during the NFO period. After the NFO period, when the units are traded based on the daily NAV, the investors stand to gain huge capital gains depending on the performance of the fund.
Close-ended funds, on the other hand, do not allow the investors to subscribe to the fund after the NFO period is closed.
Investing in NFOs is a very good opportunity to maximize the returns as the units can be subscribed at nominal rates and the returns are potentially higher based on the prevailing NAV at the time of redemption. However, there are several points that need to be considered while subscribing to an NFO. Some of such points are highlighted below.
a)Track record of the AMC
NFOs are offered for the new mutual fund so no proven track record can be reviewed by investors to make an informed investment decision. The investors have to therefore rely on the reputation of the AMC and other details mentioned in the NFO to make an investment decision.
b)Expense ratio (if mentioned)
NFOs need a good amount of publicity to make the investors aware of the fund and the investment opportunity. It is therefore essential for the investors to check the expense ratio of the fund and ensure that it does not outweigh the net gains.
c)Check if the fund is in correlation to the existing portfolio
Recently there have been many NFOs in the market that investors can choose from. However, while selecting the fund the investors must check if the fund is not similar to an existing fund in their portfolio. For example, if the fund is a large-cap fund and the investor already has one or two similar funds in their portfolio, investing in another will not add much value to the net returns or the diversification of the portfolio. On the other hand, many NFOs can be sector-specific or country-specific. In such a case, investors have to check if the fund is in line with other factors like their risk-return profile and investment goals.
d)Review the SID carefully
Reviewing the SID (Scheme Information Document) is a crucial step that should not be missed by investors while investing in NFOs. It contains all the relevant information about the fund managers, their qualifications, and experience which is crucial for the funds’ performance. Other relevant information includes the investment profile of the fund, target sectors or securities, benchmark index, asset allocation ratio, etc. This helps the investors understand the returns expectation of the fund as well as the target investments where the fund will invest the pooled funds. Investors having a risk-return profile in line with that of the fund can thus invest in such funds.
Investment in NFOs can be done through two main routes i.e., the online or offline modes. The details of the same are mentioned below.
The online mode of investment is suitable for investors already having a Demat account and a trading account. Investors can simply select the NFO and invest by selecting the number of units to invest and paying for the same through online payment modes available on the platform.
The offline mode of investment in NFOs is through registered brokers and distributors. Investors can contact their brokers and distributors providing them with the details of the amount to be invested and they can invest in the selected NFOs on their behalf. Investors can make hassle-free investments through such modes as all the necessary forms to be filled and the formalities to be met are looked after by these entities giving investors the benefit of ease of investment. The charges for such services are nominal when compared to the potentially high returns.