The severe economic shock that has been caused by pandemic led to a lockdown, with stocks around the world melting down. Even though the Nifty 50 has recovered 20% from the March 2020 lows, it is still down by almost 25% when compared to a year to year basis. Infections and fatalities are also rising in the country, and the roadmap to normalcy is now uncertain. In such a scenario, stock-specific risks are substantial in the country.
A lot of financial investors are now recommending index funds as a good investment option to increase asset allocation in equities, and take advantage of the eventual recovery in stocks.
The Principal Nifty 100 Equal Weight Fund
The Principal Nifty 100 Equal Weight Fund invests in the 100 largest stocks in the same proportion. The objective of the scheme is to replicate the performance of the Nifty 100 Equal Weight Total Returns Index. A major advantage of the fund is that it does not need any active management, and its costs are also much lower as compared to other actively managed diversified equity schemes. The expense ratio of the scheme stands at 0.96%. ultimately, over long investment horizons, lower expenses lead to substantially higher returns, thanks to the compounding effect. The scheme also aims to provide long term capital appreciation which is in line with the market index returns.
What is the Nifty 100 Equal Weight Index?
The Nifty 100 Equal Weight Index comprises of the top 100 stocks by market capitalization and invests equal amounts, which is 1 percent of the portfolio value, in each stock. As per the market capitalization definition by SEBI, these top 100 stocks by market capitalization are classified as large-cap stock. Every quarter, the portfolio is rebalanced, to readjust the proportion of each stock in the portfolio back of 1 percent if the portfolio value.
The benefits of Nifty 100 Equal Weight Index
Nifty 100 Equal Weight Index versus Nifty
In the last seventeen years, Nifty 100 Equal-Weight TRI has managed to outperform Nifty 50 Tri. Had INR 10,000 been invested in both for 17 years, they would have grown to INR 1.37 lakhs in Nifty 100 Equal Weight Index as compared to INR 1.06 lakhs in Nifty.
Nifty 100 Equal-Weight Index-SIP
The Principal Nifty 100 Equal-Weight fund combines the dual advantages of mutual fund investments like investments through SIP, STP, etc with that of low-cost index investing.
With a cumulative investment worth INR 20.8 lakhs, the market value of your SIP in Nifty 100 Equal-Weight TRI would have grown to INR 58 lakhs, while in Nifty 50 TRI, it would have been 55.5 lakhs.
Over the last seventeen years, the annualized SIP return for Nifty 100 Equal-Weight TRI stood at 10.84%
Principal Nifty 100 Equal Weight Fund versus Benchmark
The purpose of index funds is not to beat the benchmark index. Their aim instead is to give returns in line with the benchmark returns. Therefore, one important performance measure of index funds is tracking error, that is how closely it can track the index.
Why should you invest in the Principal Nifty 100 Equal Weight Fund?
Who should invest in this scheme?
Investors who are impressed with the fund should consult their financial advisors about the feasibility of this fund for their investment needs.