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ICICI Prudential has come up with an ETF modelled on the CNX 100 index. Subject to tracking error, the fund seeks to provide returns that mirror the performance of the CNX 100 index. The ETF will be listed on the National Stock Exchange (NSE).
Suitability
For investors who cannot stomach the relatively higher volatility that characterises actively managed equity mutual funds, ETFs or index funds are a good alternative. The losses (as also the gains) on these funds will be limited to the movement of the index, as compared with the wide variations in returns that can occur in a basket of individually chosen stocks.
The risk is toned down further with funds based on large-cap oriented indices such as this ICICI Pru ETF offering. During volatile and correcting markets such as what is being witnessed currently, where macro-economic indicators are not in great shape and corporate earnings have taken a beating, large-cap stocks tend to show more stability.
The CNX 100 index predominantly has a large-cap tilt to its holdings, accounting for about 70-80 per cent of the market capitalisation (free-float) of stocks listed in the NSE. Financial Services, Consumer Goods and Energy are the top sectors while ITC, Infosys and Reliance Industries are top stocks.
The CNX 100 also has quality defensive stocks to play volatile markets, providing a wider platform than bellwethers such as the Nifty or Sensex. For example, Dabur and Godrej Consumer, niche plays in the FMCG segment that have not seen a volume slowdown so far and which sport comparatively reasonable valuations, form part of the index. Defensives in other sectors such as Oracle Financial Services, Lupin, Divi’s Labs are also part of this index. Good large-cap plays in the auto ancillary space such as Bosch and Exide Industries too find a place.
While it proposes to invest up to 5 per cent of its assets in money market instruments, the scheme will not take exposures to derivatives, securitised debt or foreign securities.
Index Performance
Over the last five years, the CNX 100 has delivered a return of 4.6 per cent. This is slightly higher than the 4-4.3 per cent clocked by the Nifty and Sensex. In this five-year period, the CNX 100 has beaten the returns of the Nifty 55 per cent of the time. Its three- and one-year returns stand at -0.03 per cent and 3.8 per cent, respectively.
Other details
The fund has an expense ratio of 0.5 per cent, in line with what is charged for passively managed funds. Investors must, however, remember that they will have to bear brokerage charges when selling units through the stock exchange. The minimum application amount is Rs 5,000 and multiples of Re 1, thereafter. The offer closes on August 16.
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