NFO Pick – (HDFC Nifty Top 20 Equal Weight Index Fund)

17 Mar 2025 , 09:50 AM

WHAT IS HDFC NIFTY TOP 20 EQUAL WEIGHT INDEX FUND ALL ABOUT?

The HDFC Nifty Top 20 Equal Weight Index Fund is benchmarked to the Nifty Top 20 Equal Weight Index (TRI). In short, it will replicate the returns of the Nifty Top 20 Equal Weight Index (TRI) by minimizing the tracking error. It offers 4 key opportunities to investors. Firstly, in the current context, the large caps have less of a valuation premium compared to mid-caps and small caps. Hence, it offers a better entry point. Secondly, this fund allows investors to gain from stocks with clear leadership position in their industry.

Thirdly, in tough market conditions, it has been observed that these larger cap stocks tend to have lower drawdowns. That is because, they have more matured and diversified business models. A wider client base ensures stable performance. Lastly, by going for a TOP-20 equal weighted fund, you are less exposed to sectoral concentration, as against a traditional index fund. This makes the fund less risky.

HOW THE NIFTY TOP 20 EQUAL WEIGHT INDEX DIFFERS FROM NIFTY 50?

One of the reasons to invest in the Nifty Top 20 Equal Weighted Index fund is to get a passive exposure to the large caps, without the market weighting bias of the Nifty. Here are some key differentiation points to note.

• While the Nifty stocks are weighted by free-float market cap; the Nifty Top 20 Equal Weight Index is selected by free-float market cap, but all 20 stocks have approximately equal weighting of around 5%.
• The Nifty Top 20 Equal Weight Index does a quarterly rebalancing of weights. This ensures that the representation of the largest companies in the index is as current as possible. This makes the index highly representative of the bluest of blue chips.
• The Nifty Top-20 Equal Weight index has some sectoral weight differences. For instance, sectors like consumer durables, auto, FMCG, and Telecom get a higher weight in the equal weighted index. However, Oil & Gas, BFSI, metals, and power are weighted lower.
• In the Nifty Top-20 Equal Weight Index, top 3 stocks account for only 16.8% weight, compared to 28.8% for Nifty 50. Similarly, top 5 stocks account for just 27.3% weight, compared to 39.3% for Nifty 50.
• If you look at CAGR performance of 3 years and above, the Nifty Top-20 Equal Weight Index has outperformed the Nifty 50 by 100 bps to 300 bps on an average. The equal weight index has thus emerged as a better long term wealth creator.

Let us now turn to the highlights of the HDFC Nifty Top 20 Equal Weight Index Fund NFO.

GLANCE AT THE HDFC NIFTY TOP 20 EQUAL WEIGHT INDEX FUND NFO

Here are key details of the HDFC Nifty Top 20 Equal Weight Index Fund NFO.

• The NFO opened on March 07, 2025 and closes on March 21, 2025. Regular sale and repurchase of units at NAV linked prices will start within 15 days after closure.
• On the risk-o-meter, HDFC Nifty Top 20 Equal Weight Index Fund is classified as “Very High Risk Fund” due to being a predominantly very large cap equity based fund.
• Investment objective is to mirror the Nifty Top 20 Equal Weight Index (TRI), before fees and expenses, and to minimize the tracking error in the index fund.
• There is no entry load. Being an index fund, there will be no exit load on redemptions too. However, being an equity oriented fund, STT will be chargeable on redemptions.
• HDFC Nifty Top 20 Equal Weight Index Fund offers Regular and Direct plans. Additionally, the fund also offers the Growth option and the IDCW option to investors. Nirman Morakhia and Arun Agarwal will be the designated fund managers.
• The minimum application in the NFO, and after, will be ₹100 and in multiples of ₹1. The fund will be benchmarked to the Nifty Top 20 Equal Weight Index (TRI).
• Despite being an index fund, with the objective of mirroring the index, there is no guarantee of returns. These are subject to the risk of market fluctuations. As a passive fund, it avoids the risk of fund manager bias.
• HDFC Nifty Top 20 Equal Weight Index Fund, being a pure equity fund, the taxation will depend on the STCG / LTCG classification. STCG tax (held for less than 1 year), will be levied at 20.8% (including surcharge). LTCG tax (held for more than 1 year or more), will be levied at 12.5%, subject to a maximum annual exemption up to ₹1.25 Lakhs.

The HDFC Nifty Top 20 Equal Weight Index Fund offers a passive template for participating in the bluest of blue chip stocks from a long term value creation perspective.