Index Funds/Exchange Traded Fund (ETF) Schemes UTI Nifty Next 50 Index Fund (An open ended scheme replicating/tracking the Nifty Next 50 index)
This product is suitable for investors who are seeking*:
•Capital growth in tune with the index returns
•Passive investment in equity instruments comprised in Nifty Next 50 Index.
* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENT CAREFULLY. Growth of Equity Exchange Traded Funds and Index Funds in India
Equity ETFs and Index Funds AUM as % of Equity Mutual Fund AUM* Equity ETFs + Index Funds AUM* 1,68,127
20.07% 1,37,776 16.72%
10.66% 74,825
8.79% % share % 45,515 4.38% Crs. Rs. inAUM 2.35% 16,558 7,978
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Jun-20 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Jun-20 Period Period
Major Growth Enablers
• Retirement Funds are mandated to invest at least 5% of annual accretion in Equities. Many of them have opted Equity ETFs/Index Funds for equity investment.
• Categorization and Rationalization of Mutual Fund Schemes by SEBI$
• Benchmarking of funds moved from Price Return Index (PRI) to Total Return Index (TRI).
• Challenges in generating alpha due to improving efficiency of equity market and reducing information asymmetry.
* Month End Asset Under Management (AUM). Source: MFI Explorer. $ with reference to circular number SEBI/HO/IMD/DF3/CIR/P/2017/114 SEBI - Securities and Exchange Board of India. TRI refers to index values which also account for dividends, where as in case of Price Return Index (PRI), dividends distributed by companies forming part of an index are not considered. 2 What is an Equity Index?
Rule Based Representation Indexing
An Index is a rule based portfolio Indices represents certain Investing in a portfolio which is where, stocks/companies are characteristics of a market aligned to particular index. I.e. selected based on pre-defined segment, like market equity portfolio will hold same rules without any individual’s capitalization, sectors, themes, stocks and in same proportion as biases factors etc. represented by an Index.
3 Why Indexing?
Easy to Understand Low Cost Low Risk It reduces the process Normally, index funds Helps in reducing un- of selection vis-à-vis and ETFs are systematic risk and an individual available at lower rewards for taking stock/fund. cost than actively systematic risk. managed funds.
Market is efficient No Biases Zero Sum Game Movement in prices Elimination of Positive alpha* of one are based on new individual’s biases & market participant information and subjective opinion has to come from indices reflects the while picking negative alpha of collective stocks/funds another market interpretation by the participant various market participants
* Alpha is difference between returns generated by a scheme and its benchmark. When a scheme generate more returns as compared to its benchmark is called positive alpha. When scheme generate less returns as compared to its benchmark, is called negative alpha. 4 Why Indexing?
S&P Indices versus Active Fund (SPIVA) India Scorecard
• SPIVA India scorecard compares the performance of actively managed Indian mutual funds with their respective benchmark indices over 1, 3, 5, and 10 year period.
• The comparison is done in a scientific way considering survivorship bias correction, style consistency, apple-to-apple comparison, asset weighted returns etc.
• This semi-annual report is called as SPIVA scorecard.
• Extract from the Year End December 2019 Report: Majority of large-cap funds are underperforming the Index.
Source: https://us.spindices.com/documents/spiva/spiva-india-mid-year-2019.pdf. ‘SPIVA report’ is published twice in a year i.e. for the period ending June and December of each year. The extract from latest available report is mentioned above. 5 Mutual Fund Products for Index Investment
• Exchange Traded Funds (ETFs) and Index Funds, both can be used for Investing in an Index under Mutual Fund route.
• Both are very similar from fund management perspective.
• Major Differences:
Features ETFs Index Funds
Net Asset Value (NAV) Real Time End of the day
Authorised Participants (APs) on stock Liquidity Provider@ exchange Only by Fund + Fund itself
Portfolio Disclosure Daily Monthly
Possible if investor has required inventory of Intraday Trading Not possible units Transaction costs are Cost effectiveness Each investor bears their own transaction cost spread across the fund
Holding format Compulsory in Demat form Physical + Demat
Controlled by investor as investor can suggest Investment decision Not applicable the price/NAV at which they want to transact
@ - In case of ETFs the Scheme offers units for subscription / redemption directly with the Mutual Fund in multiple of creation unit size to Authorized Participants / Large Investors only. Investor can buy/sell ETF units in cash segment on secondary market of exchanges where it is listed in multiple of 1 unit. AMC may appoint APs for providing liquidity on exchanges. Please read scheme related documents for “creation unit size” 6 How Exchange Traded Fund works?
ETFs are traded on exchange just like a normal stock Money Money Various investors, buying & selling ETF units on Secondary ETFs ETFs stock exchanges, creates natural liquidity. Market Buyers Stock Sellers Exchanges Generally, all trading and settlement rules applicable to a stock, are also applicable to ETFs.
AMCs appoint Authorized Participants (APs) to provide additional liquidity. ETFs Money Money ETFs When there is high demand of units on exchanges, APs create units from AMCs and sell these units on exchanges.
When there is high supply of units on *APs / LIs Primary exchanges, APs buy units on Market exchanges and redeem these units ETFs Money Money ETFs with AMCs.
Fund House
* AP – Authorized Participant. LIs – Large Investors. Fund House – Asset Management Company 7 How to Transact – ETFs v/s Index Funds
Investor can get in touch with their stock Stock Exchanges ETF units can be held only in dematerialized broker or sub-broker to buy/sell ETFs through ETF Units (demat) form. The holding is reflected in their broking account, similar to transacting in demat statement available with demat a stock. participants where demat account is maintained
Investor can get in touch with AMC or Index Fund units can be held in digital or IFA/RIA/Distributor etc., to buy/sell Index Fund dematerialized form. In case of digital similar to transacting in traditional open- holding, investor can get statement of ended mutual fund scheme account from AMC or its Registrar and Index Fund Transfer Agent. Fund House
Additionally ETFs can be bought/sold through Asset Management Companies (AMCs) in multiple of creation unit size. 8 About ‘Nifty Next 50’ Index@
Parameter Details
Broad Selection Criteria* Next 50 companies after Nifty 50 from the Nifty 100 Index
Number of constituents 50
Market Capitalization and Exposure$ Top 5 Stocks#
Weights in % 22,12,656
SBI LIFE INSURANCE COMPANY LTD. 5%
DIVIS LABORATORIES LTD. 5% Market Exposure
15% AVENUE SUPERMARTS LTD. 4%
Stocks Cap in Rs. Rs. Crores in Cap
- DABUR INDIA LTD. 4% M
GODREJ CONSUMER PRODUCTS LTD 4% 1,33,665 38,574 15,684 Others 79% Total M-Cap of Index Median M-Cap M-Cap of Top M-Cap of Bottom Company Company
Data as on July 31, 2020. @Nifty Next 50 Index is an index product of NSE Indices Limited (a subsidiary of National Stock Exchange of India (NSE) Limited). Source: www.niftyindices.com, Bloomberg. * Subject to other selection criteria defined under index construction methodology. $ Data based on Total Market Capitalization of companies. % Market Exposure = Total Market Cap of Index / Market cap of all listed companies in NSE. # 9 The Stocks referred in this literature are not an endorsement by the Mutual Fund and AMC of their soundness or a recommendation to buy or sell these stocks at any point of time. The name of companies are only for reference purpose. Nifty Next 50 Index Comparison – Broad Sector Exposure
Exposure in %
Nifty 500 30% 13% 13% 15% 6% 24%
Nifty 50 33% 16% 16% 13% 6% 16% Index
Nifty Next 50 26% 7% 4% 26% 3% 35%
Nifty MidCap 150 20% 4% 4% 18% 9% 46%
FINANCIAL SERVICES OIL & GAS IT CONSUMER GOODS AUTOMOBILE OTHERS
Data as on July 31, 2020. Source : NSE, Bloomberg. # The sectors referred in this literature are not an endorsement by the Mutual Fund and AMC of their soundness or a recommendation to buy or sell at any point of time. The sectors are only for reference purpose. 10 Why Invest in Nifty Next 50?
Nifty Next 50, well diversified large Cap index, has the potential to give Mid Cap like returns with relatively better drawdown protection.
Large Cap$ Well Diversified@ Return behavior@*+~ Drawdown*+!~
Nifty Next 50 index has more than It has less exposure to financial Historically, Nifty Next 50 Index has Historically Nifty Next 50 has shown 80% exposure in Large Cap, thus services. Within financial services shown return behavior similar to better downside protection over can be categorized under ‘Large also, it is diversified across banks, Nifty Mid Cap 150 Index. Nifty Mid Cap 150 Index Cap Fund’ NBFCs^, insurance and asset
management companies
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1,00,000 2005 0% 90,000 Nifty 500 82% Nifty 500 30% 80,000 -10%
70,000 -20% 60,000 -30% Nifty 50 100% Nifty 50 33% 50,000
40,000
-40% Growth of of Rs. 10,000 Growth
Index 30,000 Index -50% Nifty Next 50 92% Nifty Next 50 26% 20,000
10,000 -60%
0
-70%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Nifty MidCap 150 9% Nifty MidCap 150 20% Period -80%
Nifty Midcap 150 TRI Nifty Next 50 TRI Exposure to Large Caps in % Exposure to Financial Sector in % Nifty Next 50 TRI Nifty Midcap 150 TRI
Data as on July 31, 2020. Source: NSE, MFI Explorer. Bloomberg. $ As per list published by Association of Mutual Funds in India in June-’20 for the period Jan to June 2020 with reference to Securities and Exchange Board of India circular number SEBI/HO/IMD/DF3/CIR/P/2017/114 dated 6.10.17 on categorization and rationalization of Mutual Fund Schemes. @ The indices/sectors referred in this literature are not an endorsement by the Mutual 11 Fund and AMC of their soundness or a recommendation to buy or sell at any point of time and are only for reference purpose. ^ NBFCs – Non Banking Financial Companies. *Period from 01.04.05. +Data points rebase to 10,000. ~Graph is to represent overall movement of indices and not specific to particular time period. ! To calculate drawdown, respective current date closing value of an index is subtracted from historic peak of an index and such value is divided by from historic peak of an index. These data points are graphically presented above. TRI = Total Return Index. Nifty Next 50 Index Comparison – Returns
Point to Point
Annualized Returns Growth of Rs. 10,000
10% 26,270 10% 25,483
9% 23,309 9% 22,655
6% 7% 7% 6% 13,811
4% 13,804 13,620
4% 13,492
11,400
10,637
10,415
10,262
10,098
10,068 9,955 3% 2% 9,704
1% 1%
Returns in % inReturns Amount Rs. inAmount
0% -1% 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Period Period
Nifty 500 TRI Nifty 50 TRI Nifty Next 50 TRI Nifty Midcap 150 TRI Nifty 500 TRI Nifty 50 TRI Nifty Next 50 TRI Nifty Midcap 150 TRI
Monthly Investment
11% 11% 9% 9%
8%
19,19,622 21,30,858 21,16,820 7% 19,15,950 6% 7% 7% 5% 5% 3% 3%
1%
7,12,684
6,85,698
6,74,371
6,52,360
Returns in % inReturns
Amount Rs. inAmount
3,76,597
3,63,830
3,55,873
3,44,817
1,24,281
1,23,546 1,23,681 -1% 1,23,472 -3% 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years Period Period
Nifty 500 TRI Nifty 50 TRI Nifty Next 50 TRI Nifty Midcap 150 TRI Nifty 500 TRI Nifty 50 TRI Nifty Next 50 TRI Nifty Midcap 150 TRI
Data as on July 31, 2020. TRI i.e. ‘Total Return Index consider dividend issued by companies forming part of Index. Source: MFI Explorer. Returns are calculated considering last working day of the month. Returns over one year are of compounded annualized growth rate (CAGR). In case of monthly investment, we have assumed Rs.10,000 invested at month end closing price of total return index. Monthly return is calculated considering 12 RATE() function in MsExcel. Such monthly return is annualized. Investors cannot invest directly into an index. However, they can expect similar returns using ETF or Index Fund, subject to tracking error and cost. Returns over one year are of compounded annualized growth rate (CAGR). About UTI Nifty Next 50 Index Fund
Type of scheme Plans & Options@ Entry and Exit Load*
An Open ended scheme Regular and Direct plans with NIL replicating/tracking Nifty Next 50 Growth option Index
Inception Market Cap Exposure*
June 28, 2018 Large Cap – 92% Mid Cap – 8% Small Cap - Nil
* As on June 30, 2020. @ Under UTI Nifty Next 50 Index Fund in addition to regular, there is a direct plan. Both plan offers only growth option and other options like dividend payout and dividend reinvestment etc. are not available. For more details please read Scheme Information Document. 13 Why UTI Nifty Next 50 Index Fund?
Asset Under Management (AUM), Total Expense Ratio (TER) and Tracking Error (TE) are critical aspects while selecting any ETF or Index Fund.
Asset Under Management (Size)@ Total Expense Ratio (Cost)#$ One Year Tracking Error#
0.82% 0.77%
588 0.51% 0.50%
. Crs
TER in % inTER 0.34%
0.31%
AUM in Rs. Rs. inAUM Tracking Error in % in Error Tracking 178 0.12% 0.12%
Direct Regular Direct Regular
UTI Avg. AUM of other funds tracking Nifty Next 50 UTI Avg. TER of other funds tracking Nifty Next 50 UTI Avg. tracking error of other funds tracking Nifty Next 50
Large size Competitive Cost Lowest Tracking Error
Source: MFI Explorer @ Month End Asset under management in Rs. Crs. for the month June 2020 # As on July 31, 2020 $ May change in future within the limits and rules prescribed by SEBI from time to time. UTI – UTI Nifty Next 50 Index Fund. Direct refers to Direct Plans offered under mutual fund schemes and Regular refers to regular plans. Only growth options are considered for the analysis. Various schemes may broadly offer, dividend 14 payout and dividend reinvestment options in addition to growth option. Please read Scheme Information Document and other statutory documents of respective schemes for more details. REGISTERED OFFICE: UTI Tower, ‘GN’ Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400051.Phone: 022 – 66786666. UTI Asset Management Company Ltd (Investment Manager for UTI Mutual Fund) Email: [email protected] . (CIN-U65991MH2002PLC137867). For more information, please contact the nearest UTI Financial Centre or your AMFI/NISM certified UTI Mutual Fund Independent Financial Advisor (IFA) for a copy of the Statement of Additional Information, Scheme Information Document and Key Information Memorandum cum Application Form.
Disclaimers: The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on this document and should understand that statements regarding future prospects may not be realized. The recipient of this material is solely responsible for any action taken based on this material. Opinions, projections and estimates are subject to change without notice.
UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully