NFO Pick – (Kotak Nifty Top 10 Equal Weight Index Fund)

7 Apr 2025 , 10:27 AM

WHAT IS KOTAK NIFTY TOP 10 EQUAL WEIGHT INDEX FUND ALL ABOUT?

There are 3 unique factors about the Kotak Nifty Top 10 Equal Weight Index Fund. Firstly, it is a passive index fund that is pegged to an existing index in the market. Secondly, this is a more granular classification of index funds and are referred to as factor funds. Here, apart from index inclusion, additional criteria are applied to further distil the outperformers in the broad-based index. Thirdly, this is an equal weight fund.

Typically, stocks are weighted on the index by free-float market cap. If two stocks have the same market cap but if the first has a free float, then the first fund will get a higher weight. However, this approach tends to be tuned towards large market stocks. Here, the focus is on equal weight, so the market cap of the stock does not determine its weight or exposure in the particular fund. These are the 3 factors that make this fund unique.

WHAT IS THE FITMENT OF THIS FUND FOR INVESTORS?

To understand the fitment of the Kotak Nifty Top 10 Equal Weight Index Fund for investors, the following points need to be understood.

• This product is best suited to investors who are willing to wait for the long haul and take an 8-10 year approach to investing. This is essentially a long term fitment.
• While this is technically an index fund, one must remember that this is a factor fund that applies active criteria. Hence risks and costs are relatively higher than passive funds.
• This is still a large cap fund as the fund selection is based on free float market cap. Only their weightages in the portfolio are equal, so impact of market cap is reduced.
• The fund tends to be dynamic and hence it is suited to investors who are willing to take that additional risk for the sake of additional returns, through periodic rebalancing.
• These factor funds tend to take a longer time to give above market returns. To neutralize the volatility, an SIP approach would be highly recommended.

Let us turn to how this specific factor index has performed against other indices.

DID THE NIFTY TOP 10 EQUAL WEIGHT INDEX BEAT THE NIFTY 500?

We shall compare the performance of the Nifty Top 10 Equal Weight Index vis-à-vis the Nifty 50 and the Nifty 500 to get a granular picture. Here are key takeaways.

• If you look at average rolling returns of Nifty Top 10 Equal Weight Index over 5 years and 10 years, it has been 13.4% and 12.4% CAGR respectively. That is meaningfully better than the Nifty 50 and the Nifty 500 returns over both periods.
• Out of the 3 indices spoken about here, the Nifty Top 10 Equal Weight Index has the lowest drawdown across various corrections; including the global financial crisis and the COVID meltdown in markets.
• Even in valuation terms, the Nifty Top 10 Equal Weight Index has a current P/E ratio of 19.7%, which is lower than long term average. In contrast, the Nifty 50 trades at 20.4X Price earnings ratio and the Nifty 50 at 21.8 times P/E ratio.
• The Nifty Top 10 Equal Weight Index is also fairly representative. For instance, Nifty Top 10 Equal Weight Index accounts for 16% of total profits, nearly 24% of market cap, and 17% of the revenues of the Nifty 500 stocks.

In short, the Nifty Top 10 Equal Weight Index has given better returns over sustained period of time with lower drawdown risk compared to the other generic indices.

GLANCE AT THE KOTAK NIFTY TOP 10 EQUAL WEIGHT INDEX FUND NFO

Here are key details of the Kotak Nifty Top 10 Equal Weight Index Fund NFO.

• The NFO opens on April 07, 2025 and closes on April 21, 2025. The allotment date for units will be within 15 days from the close of subscription of the NFO.
• On the risk-o-meter, Kotak Nifty Top 10 Equal Weight Index Fund is classified as “Very High Risk Fund,” due to its predominant exposure to equities and a concentration of large cap names in the portfolio.
• Investment objective is to generate long term wealth through a passive approach to investing in the stocks in the Nifty Top 10 Equal Weight Index. Fund performance will mirror the Nifty Top 10 Equal Weight Index TRI, subject to tracking error.
• There is no entry load. Being an index fund, there will be also be no exit load. However, investors are suggested to take a long term view of 5-7 years for optimal performance.
• Kotak Nifty Top 10 Equal Weight Index Fund offers Regular and Direct plans. Additionally, the fund also offers the Growth option and the IDCW option to investors.
• Minimum application amount in NFO will be ₹100 and in multiples of ₹1. Devender Singhal, Satish Dondapati, and Abhishek Bisen are the designated fund managers.
• Despite being an index-based factor fund, there is no guarantee of positive returns or of the fund fully mirroring the performance of the index in reality.
• Kotak Nifty Top 10 Equal Weight Index Fund, is a pure equity fund. STCG tax (less than 1 year), will be taxed at 20.8% (including surcharge). LTCG tax (1 year or more), will be taxed at 12.5%, after maximum exemption of ₹1.25 Lakhs per financial year.

The Kotak Nifty Top 10 Equal Weight Index Fund mirrors the performance of the Index TRI and is a passive means to create a solid portfolio of blue chip stocks, indirectly.