The Kotak Mutual Fund has launched the Smallcap 50 Index Fund NFO, which opens for applications on the 16th.th March 2023. This small cap index fund invests in small cap companies that are part of the NIFTY Smallcap 50 Index. Mid- and small-cap funds are generally riskier, but offer higher returns over the medium to long term.should you invest in Kotak Nifty Smallcap 50 Index Fund NFOWhat are the risk factors to consider before investing in such small cap funds?
Also read: 5 equity funds with up to 24% annual returns
What is the Nifty Smallcap 50 Index?
The primary objective of the Nifty Smallcap 50 Index is to capture the movement of the small cap segment of the market. The index represents the top 50 companies selected based on average daily sales from the top 100 companies selected based on market capitalization in the Nifty Smallcap 250 Index.
The Nifty Smallcap 50 Index is calculated using the float market capitalization method. An index level reflects the sum of the free float market values of all stocks in the index for a given base market cap.
The Nifty Smallcap 50 Index can be used for a variety of purposes including fund portfolio benchmarking, index funds, ETFs and structured product launches.
Kotak Nifty Smallcap 50 Index Fund – NFO Issue Details
This is an open ended mutual fund. Here are the details of the NFO issue:
| The scheme will open | March 16, 23 |
| scheme close | March 29, 2023 |
| Schemes for continuous purchases/sales are reopened | Within 5 business days |
| Minimum amount | 5,000 rupees |
| Minimum SIP | 500 yen for 10 months |
| Fund’s NAV | Rs 10 during NFO period |
| entry road | none |
| exit road | none |
| dangerous | very expensive |
| standard | Nifty Smallcap 50 Index TRI |
| fund manager | Mr. Debender Singhal With Satish Dondapati Mr. Abhishek Bisen |
| Total expense ratio (TER) | 1.00% |
you can read Kotak Nifty Smallcap 50 Index Fund NFO SID here.
What is the investment objective of the Kotak Nifty Smallcap 50 Index Fund?
The investment objective of the scheme is to replicate the composition of the Nifty Small cap 50 Index and generate returns commensurate with the performance of the Nifty Small cap 50 Index.
However, there is no guarantee that the investment objective of the scheme will be achieved.
What is the allocation pattern for this mutual fund scheme?
The investment pattern of this fund is as follows:
| instrument type | min % | Max % | risk profile |
|---|---|---|---|
| Equities and equity-related securities covered by the Nifty Smallcap 50 Index | 95% | 100% | very expensive |
| Debt and money market securities | 0% | Five% | medium to low |
What does the underlying index contain?
Underlying index performance and risk statistics
Graph showing how the index performed over a 15-year timeframe
Why invest in the Kotak Nifty Smallcap 50 Index Fund NFO?
There are no primary reasons to invest in this fund.
Key risk factors to consider before investing in such funds
You should consider some of these risk/negative factors before investing.
1) The Fund invests in the Small Cap 50 Index, which includes small cap companies. Small cap funds are always considered high risk. These are volatile in nature. Fund managers may face liquidity issues in some small-cap stocks.
2) The index has produced negative returns over the last five years. Even over the past 15 years, the fund has produced near-zero or minimal returns.
3) Investors should read the NFO prospectus before investing in any such mutual fund scheme.
Also read: SIP Mutual Fund Performs Worst Short to Long Term
Should I invest in the Kotak Nifty Smallcap 50 Index Fund NFO?
This fund invests in stocks of the Nifty Smallcap 50 Index.
Index funds offer risk-adjusted returns, but the index has produced negative returns over the past five years (2018-2023) and almost zero over the past 15 years (2008 peak to current 2023). Produces minimal returns.
Investors may reconsider investing in the Nifty Smallcap 250 Index (which contains 250 shares) rather than the Nifty Smallcap 50 Index (which contains only 50 shares). The Nifty Smallcap 250 Index has delivered a 6.75% annualized return over the last 5 years, a 14.4% annualized return since inception, and a 6%+ annualized return over the last 15 years (2008 peak to present).
Given the dismal short, medium and long term performance of this index, investors can avoid this NFO for now.
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Suresh KP is the founder of Myinvestmentideas. He is his NISM Certified – Investment Advisor and NISM Certified – Research Analyst. He has been analyzing financial markets for the past 20 years.
