DSP BlackRock Investment Managers Pvt. Ltd., an asset management company, launched its first passive fund, ‘DSP BlackRock Equal Nifty 50 Fund’. This is different from other index funds as this fund assigns equal weight to each stock and invests equally in them. In other funds the weight of each constituent is apportioned according to their market capitalization and the free float. In this scheme, each company will be apportioned 2% of portfolio, given that there are 50 companies in the Nifty 50. The index fund gets rebalanced on a quarterly basis. It has a profit booking mechanism, in effect buying the underperformers at “low” and selling the outperformers at “high”. One will have to see how this works in real life. It will be interesting. No exit loads too.
Gauri Sekaria, Vice President, ETF and Passive Investments at DSP BlackRock Investment Managers Pvt. Ltd, is the fund manager for this fund. Features?
(a)  Large Cap exposure: The fund provides pure large-cap exposure by investing in the top 50 companies in the country. (the Nifty 50 companies)
(b)  Equal weight: Equal weight on all constituents of the index. No bias towards better companies!!
(c)  Diversification: Broad portfolio with diversification across stock and sectors.
(d) Cost effective: Exposure to diversified portfolio of large-cap stocks.
Sundaram Mutual Fund had launched the Nifty 100 Equal Weight fund long ago, and sorry I have not tracked its performance. However the DSP brochure shows some out performance for an equal weighted index over the past few years. I rest my case. In India, it was observed that the ‘Nifty 50 Equal Weight’ index has outperformed the Nifty 50 index over longer periods of time, therefore, the scheme may be better than a plain index scheme, but can it beat a diversified equity scheme? Maybe, Maybe not.
What I like? I like the cost at 0.90 and 0.40 (direct) amc charges. Is it something to go ga ga about this? NO. An ETF would charge a similar amount – hey they told me this is not an ETF. Actually I do not know why this is not an ETF. I am wondering why this is not an ETF? Speaking of Sundaram Equal Weight Index fund: It has an expense ratio of 1.8% for regular and 0.9% for direct (as per VR). Bogle will be boggled ! (this line was sent in by a reader)
I also do not know the role of a fund manager in an equal weighted index fund. Should a nice intelligent algorithm do the work? Does the fund manager act more like a compliance person? She has to make sure that the rules are followed diligently? No, no sarcasm here I really do not know and would love it if DSP Blackrock can throw some light.
I do not know what can be the benchmark for a fund like this. Is changing weights not an important part of active management? or since the rules are made upfront this is a passive fund with pre set rules?
I do think that the greater the number of active funds, it will become more and more difficult to generate alpha. If each fund manager changes weights, chooses different companies, and some big funds do closet indexing, will alpha disappear?
So is DSP Blackrock an actively managed fund house or an ETF aggregator? Is SBI MF now having more funds under ETF than in active management?
Please do not ask me. Ask these questions at the forthcoming Morningstar conference on 10/11 October at Mumbai !!
  1. Thank you for posting this ! I might actually consider this in a year or two.

    Speaking of Sundaram Equal Weight Index fund: It has an expense ratio of 1.8% for regular and 0.9% for direct (as per VR). Bogle will be boggled !

  2. the problem with esoteric products is it can do NOTHING to your over all return Sridhar. Even assuming you do allocate money to this fund how much will you do? 20%? Will that impact? and if you allocate say 5% will it matter?

  3. I feel this particular fund has got no value or logic. It actually ‘underweights’ good performing stocks by reducing their weight to equal weight or 2% and at the same time ‘overweights’ bad performing stocks by increasing their weight to equal weight or 2%.
    It is not a good idea.
    Why would some one not like to participate in the market rally of good performing stocks. I think this logic can be back-tested for the last 10 years and the Fund can come out with a strong logic behind coming out with this kind of Scheme.

  4. Sir, I remember Sucheta mam and Debashish sir also suggest the same method of investing, i.e, allocating equal weight to all the stocks. They also recommend the same in moneylife sessions and magazines.

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