While Nifty is down by nearly 33 per cent, L&T Nifty 50 Index Fund and L&T Nifty Next 50 Index Fund NFO opens today for subscription.
Nifty 50 Index Funds: At a time when the Nifty50 is down by about 33 per cent in one year, L&T Investment Management, the mutual fund arm of L&T Financial Services, has announced the launch of L&T Nifty 50 Index Fund and L&T Nifty Next 50 Index Fund. The New Fund Offer (NFO) is scheduled to open on March 24 and close on March 31, 2020.
These open-ended index funds seek to replicate the performance of the Nifty 50 Index and Nifty Next 50 Index and operate predominantly in the large-cap space as defined by SEBI. Such funds offer diversification by investing in market leaders of different sectors.
The L&T Nifty 50 Index Fund will track the Nifty 50 which is the flagship index on the National Stock Exchange of India Ltd. (NSE). The index tracks the behaviour of a portfolio of blue-chip companies, the largest and most liquid Indian securities. It includes 50 of the approximately 1,600 companies traded on the exchange and captures approximately 65 per cent of its float-adjusted market capitalization. The fund covers major sectors of the Indian economy and offers investors exposure to the Indian market in one efficient portfolio.
The L&T Nifty Next 50 Index Fund will track the stocks that are the next 50 by market capitalization after the top 50 largest companies which are in the Nifty 50. Predominantly composed of large-cap stocks, this category is believed to be the stepping stone to become a part of the Nifty 50 index.
Index funds are considered to be a kind of proxy to the stock market front line indices. So, if the index generates 13 per cent annualised return over 13 years, the index fund will more or less generate an equal return. Now, over the same period, an actively managed fund could have generated 19 per cent, while another actively managed fund could have delivered 6 per cent. As an index fund investor, one can safely assume to get the returns in line with the market i.e. the index which it tracks. There is no role of the fund manager in the stock selection.
Should you invest now
That depends entirely on your risk profile. The global economic condition doesn’t look to come back to tracks anytime soon. The markets may slide further down or may recover looking at the response of the central banks all across the world. How the recession will pan out and how much economic damage it will have is equally uncertain. At the same time, long term investors may consider using index funds to save for their long term needs after discussing with their financial advisors.