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Kotak Mutual Fund, India's fifth largest fund house, unveiled its latest passive fund offering, Kotak BSE PSU Index Fund, last week (July 10). The launch coincides with the PSU index (a collection of government-owned companies) inching ahead of the broader market in recent months.
The new fund will remain open for investor subscription until July 24, 2024.
Kotak BSE PSU Index Fund: At a glance
| Type of fund | Open-ended index fund |
| The index it'll track | BSE PSU Index |
| Fund manager(s) | Devender Singhal, Satish Dondapati, Abhishek Bisen |
| Exit Load | Nil |
| Taxation | If units are sold within a year, capital gains will be taxed at 15 per cent. If units are sold after one year, capital gains are taxed at 10 per cent. Gains of up to Rs 1 lakh are tax-exempt. |
About the fund and the index
Since Kotak BSE PSU Index Fund is an index fund, it will buy and sell company stocks in similar proportions as present in the BSE PSU Index. Therefore, it is more relevant for us to analyse the index instead.
Composition
As the name suggests, the BSE PSU Index measures the performance of public sector undertakings (PSUs). Currently comprising 56 stocks, the index uses the float-adjusted market capitalisation for weighting.
As of now, the State Bank of India (SBI) is the largest company on the index, having a 15.6 per cent weight, followed by National Thermal Power Corporation (NTPC at 8.35 per cent) and Power Grid Corporation of India (6.92 per cent).
Overall, the top 5 and top 10 stocks in the PSU index have a weightage of 41.5 per cent and 60.96 per cent, respectively.
Sector-wise, the top three business segments - Financial services, Power and Oil, and Gas - account for nearly 71 per cent of the total index, suggesting the index is overly reliant on their performance.
However, the numbers may change in December, as the index undergoes rebalancing twice a year (June and December).
Performance
Remember we said that this fund is launching at a time when the PSU index has nudged ahead of India's broader market (BSE 500) in recent months? That's true. However, if you look at the PSU index's long-term performance in the graph, it has consistently trailed the broader market based on five-year rolling returns.
About the fund managers
Devender Singhal : He has been managing equity funds for Kotak AMC since August 2015. He manages assets across multi-cap and hybrid strategies, and has over 22 years of experience in fund management and equity research.
Satish Dondapati : He has over 16 years of experience managing ETFs, and currently oversees 19 funds in Kotak Mutual Fund.
Abhishek Bisen : Associated with Kotak since 2006, he manages 44 debt schemes.
Our take
The PSU index may have more than doubled in the last 12 months, following the government's increased defence spending, deeper infrastructure focus and higher capex, but its long-term performance has been eye-watering.
Additionally, investing in one particular sector or theme can be risky because the investment is heavily dependent on the future of that sector. It's like putting all your eggs in one basket.
Moreover, as mentioned earlier, the PSU index is heavily reliant on three sectors. That's a double whammy because you are not only relying on PSU's prospects but also on the future of the three largest sectors in this universe.
Rather, invest in well-diversified funds like flexi-cap or multi-cap funds . By well-diversified, we mean these funds invest across different themes and sectors. For instance, most flexi-cap funds also invest in the top three stocks of this index (SBI, NTPC and Power grid), but since they are more diversified, they invest only around 5-6 per cent in them.
However, if you believe that PSU companies have more legs in this rally, you may consider investing 5-10 per cent of your money in this fund.
Also read: Ask these three questions before investing in an NFO
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