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Fund houses have been raining investors with sectoral and thematic funds lately. This is primarily due to SEBI's (Securities and Exchange Board of India) regulations that have limited AMCs to launch only one fund per category. However, this does not apply to sectoral and passively managed funds. Thus, fund houses that already have funds in core categories are now launching NFOs (new fund offers) which either replicate a particular index or focus on a particular sector.
In line with this trend, Tata Asset Management Company (AMC) recently launched six new passively managed sectoral and thematic fund offers. Subscriptions to these schemes opened on April 8, 2024, and will remain available until April 22, 2024.
These NFOs will target the automobile, financial services, healthcare, infrastructure, manufacturing and real estate sectors. Further, they are passive funds that will replicate their respective indices.
Here are some key details about these funds.
Which indices will these funds replicate?
Below are some key details about the indices that the NFOs will aim to replicate.
Tata Nifty MidSmall Healthcare Index Fund
| Benchmark | Nifty MidSmall Healthcare Index (TRI) |
| Comparable index | Nifty Healthcare Index returns |
| About the index |
It selects 30 healthcare stocks from 400 companies in the Nifty 500, which are based on free-float market capitalisation.
The index's composition will be rebalanced twice a year, with quarterly adjustments. |
| Incumbent funds? | While this would be the first fund to track mid- and small-cap stocks specifically from the healthcare universe, five existing ETFs (exchange-traded funds) already replicate the broader healthcare index. |
| Performance of the index (%) | 3-yr: 11.3, 5-yr: 10.3, 10-yr: 7.1 |
| Performance of the comparable index (%) | 3-yr: 15.9, 5-yr: 17.9, 10-yr: 11.2 |
Tata Nifty 500 Multicap India Manufacturing 50:30:20 Index Fund
| Benchmark | Nifty 500 Multicap Manufacturing 50:30:20 Index (TRI) |
| Comparable index | Nifty India Manufacturing Index returns |
| About the index |
It includes 75 manufacturing stocks from the Nifty 500 universe, which comprises 15 large-cap, 25 mid-cap, and 35 small-cap stocks, chosen based on market capitalisation.
The index maintains a 50:30:20 weight across large caps, mid caps and small caps, with each stock weight capped at 10 per cent. It will be reviewed every six months with quarterly rebalancing. |
| Incumbent funds? | Though this is the industry's first fund with fixed weights of market caps, two funds already track the Nifty India manufacturing index. However, they don't follow fixed weights of market caps. |
| Performance of the index (%) | 3-yr: 23.4, 5-yr: 21.4, 10-yr: 15.7 |
| Performance of the comparable index (%) | 3-yr: 24.2, 5-yr: 20.4, 10-yr: 15.0 |
Tata Nifty 500 Multicap Infrastructure 50:30:20 Index Fund
| Benchmark | Nifty 500 Multicap Infrastructure 50:30:20 Index (TRI) |
| Comparable index | Nifty Infrastructure Index returns |
| About the index |
This index consists of 75 infrastructure stocks picked from Nifty 500: 15 large-cap, 25 mid-cap, and 35 small-cap stocks based on market capitalisation.
Further, it maintains 50:30:20 weight across large, mid, and small caps, with individual stock weights limited to 10 per cent. It will be reviewed twice a year, with quarterly rebalancing. |
| Incumbent funds? | Though this is the industry's first fund with fixed weights of market caps, two funds already track the Nifty India infrastructure index. But they don't follow fixed weights of market caps. |
| Performance of the index (%) | 3-yr: 29.1, 5-yr: 22.7, 10-yr: 17.1 |
| Performance of the comparable index (%) | 3-yr: 27.0, 5-yr: 21.7, 10-yr: 12.2 |
Tata Nifty Realty Index Fund
| Benchmark | Nifty Realty Index (TRI) |
| About the index |
The index tracks the top 10 real estate companies from the Nifty 500 index based on their free-float market capitalisation, with each company's weight capped at 33 per cent.
The top three stocks' combined weight is limited to 62 per cent. Further, the index will be rebalanced twice a year. |
| Incumbent funds? | HDFC Nifty Realty Index Fund. |
| Performance of the index (%) | 3-yr: 42.5, 5-yr: 28.3, 10-yr: 16.9 |
Tata Nifty Auto Index Fund
| Benchmark | Nifty Auto Index (TRI) |
| About the index |
The index picks the top 15 auto companies, chosen by free-float market cap from Nifty 500.
It rebalances semi-annually with a 33 per cent cap on individual stock weight and 62 per cent cap on the top three stocks. |
| Incumbent funds? | There are three other funds tracking the same index. |
| Performance of the index (%) | 3-yr: 15.3, 5-yr: 14.5, 10-yr: 14.3 |
Tata Nifty Financial Services Index Fund
| Benchmark | Nifty Financial Services Index (TRI) |
| About the index |
This index tracks the top 20 financial services companies in India that are selected based on their free-float market capitalisation from the Nifty 500 index. During its semi-annual rebalancing the weight of each stock is capped at 33 per cent, and the top three stocks are limited to a combined weight of 62 per cent. |
| Incumbent funds? | There is one existing ETF that tracks the same index |
| Performance of the index (%) | 3-yr: 12.1, 5-yr: 11.8, 10-yr: 15.0 |
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Note: The Nifty MidSmall Healthcare Index Fund, Nifty 500 Multicap India Manufacturing 50:30:20 Index Fund and the Nifty 500 Multicap 50:30:20 Infrastructure Index Fund are the first of their kind in the industry. Data of recently launched indices is back tested. Source: NSE India Returns are as of April 10, 2024. |
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Exit load
If an investor redeems their units within 15 days of allotment, an exit fee of 0.25 per cent of the applicable NAV (net asset value) will be charged. This will be uniform across all the six funds.
Tax treatment
If the units are sold within one year of purchase, the capital gains will be taxed at 15 per cent. And if the units are sold after more than one year, a long-term capital gains tax rate of 10 per cent will apply. In addition, any gains of up to Rs 1 lakh will be tax-exempt.
About the fund manager
Kapil Menon will oversee the management of these six schemes. He previously worked as a Dealer at the fund house for nearly two decades. Though Menon does not have prior fund management experience, this should not pose significant challenges since these NFOs will be passively managed.
About the AMC
Tata Mutual Fund is a well-established player in the Indian mutual fund industry. In addition to these new sectoral and thematic fund offerings, the fund house presently manages 49 funds across equity, debt and hybrid categories, with an AUM (assets under management) of approximately Rs 1.36 lakh crore.
Our take
Though the new sectoral and thematic funds introduced by the AMC aim to provide targeted exposure to specific industries, investors should know that such funds are riskier than diversified equity mutual funds. This is because the concentration in a particular sector and its associated risks make such funds more volatile.
Further, investors should carefully evaluate their existing portfolio exposures before deciding to invest in any sectoral and thematic funds, as their core mutual fund holdings may already have some underlying representation in these sectors.
Thus, given these funds' higher risk profile, we suggest that investors avoid them and maintain a well-diversified portfolio approach.
Also read: Three questions to ask before investing in an NFO
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