Zerodha recently introduced Nifty Large Midcap 250 Index Fund which includes Equity Linked Savings Scheme (ELSS) variant. The application period for this fund will begin on October 20, 2023 and will be accepted through November 3, 2023 during the initial New Fund Offer (NFO) period. The fund aims to invest in the Nifty Large Midcap 250 Index, which comprises both Nifty 100 and Nifty Midcap 150 stocks. Historically, the index has returned more than 15% annually. But should you consider investing in? Zerodha Nifty Large Midcap 250 Index Fund NFO? Let’s take a closer look and evaluate the risk factors associated with this mutual fund.?
Zerodha Nifty Large Midcap 250 Index Fund – NFO Details
Before we dive into investment objectives and allocation patterns, here are some important details about NFOs.
- Fund name: Zerodha Nifty Large Midcap 250 Index Fund
- Scheme Information Document (SID): please link here
- Subscription period: October 20, 2023 – November 3, 2023
Investment purpose
The primary objective of Zerodha Nifty Large Midcap 250 Index Fund is to invest in stocks that reflect the composition of the Nifty Large Midcap 250 Index. The goal is to achieve returns comparable to the Nifty Large Midcap 250 Index Total Return Index, subject to tracking error. It is important to note that there is no guarantee that investment objectives will be fully realized.
allocation pattern
This index fund invests according to the following allocation pattern.
| Type of instrument | minimum% | maximum% | risk profile |
|---|---|---|---|
| Equities and equity-related securities covered by Nifty LargeMidcap 250 index |
95% | 100% | very expensive |
| Debt and financial market instruments | 0% | Five% | low to moderate |
What does Nifty Large Midcap 250 Index Fund contain?
Nifty Large Midcap 250 Index reflects the performance of a portfolio of 100 large-cap and 150 mid-cap companies listed on the National Stock Exchange (NSE). This is represented through the Nifty 100 and Nifty Midcap 150 indices, each accounting for 50% of the total weight. Weights are adjusted quarterly. It’s worth noting that although the index was introduced in November 2017, the benchmark dates back to 2005.
Top constituents of this index
Performance of Nifty Large Midcap 250 Index Fund
Now, let’s take a look at the performance of the underlying index in which this fund invests. Gross profit includes dividends, interest, and rights received by shareholders.
Why consider investing in Zerodha Nifty Large Midcap 250 Index Fund?
Here’s why you should invest in this index fund as part of your investment strategy.
- Diversification: The fund tracks the Nifty Large Midcap 250 Index and offers a balance between stable returns and higher return potential, making it suitable for investors with a high risk appetite.
- Growth opportunities: Mid-cap stocks have the potential to evolve into large-cap stocks and blue-chip companies in the short to medium term. By investing in such funds, you can take advantage of these opportunities.
- Historic performance: Over the past five years, the index has delivered an impressive total return of 17% and has returned 15.8% since inception.
Key risk factors to consider
Before you get started in earnest, it’s important to be aware of the following risk factors.
- High risk segment: This index fund focuses on mid-cap stocks that are inherently riskier. The volatility of mid-cap stock prices may be reflected in this index.
- Debt instrument exposure: The Fund may invest up to 5% in fixed income instruments, subject to potential interest rate, reinvestment, credit, and liquidity risks.
- Read the prospectus: As with any investment, it is important to thoroughly review the Scheme Information Document (SID) and prospectus before making a decision.
Should you invest in Zerodha Nifty Large Midcap 250 Index Fund NFO?
Zerodha Nifty Large Midcap 250 Index Fund invests in a combined index of Nifty 100 and Midcap 150 companies. The index has shown strong historical performance with an annualized return of 15.8% since 2005, 17% over the past five years, and 21.9% over the past year.
However, it’s important to consider that while mid-cap stocks have growth potential, they also come with higher risks. For example, last week the index fell by 4%, highlighting this risk. There is no guarantee that this index will consistently produce stable returns that can offset the volatility of mid-cap stocks.
Investors with high risk tolerance for a mix of both large and mid-cap stocks can invest in this index fund.
Alternatively, you may consider investing in separate large-cap and mid-cap index funds to provide flexibility for different risk levels.
Suresh KP is the founder of Myinvestmentideas. He is a NISM Certified Investment Advisor and he is a NISM Certified Research Analyst. He has been analyzing financial markets for the past 20 years. He can be contacted at suresh@myinvestmentideas.com.
