Bandhan Mutual Fund filed papers with SEBI for Nifty 500 Value 50 Index Fund

Bandhan Mutual Fund has set its sights on a new endeavor, as it recently filed papers with SEBI for the launch of its Nifty 500 Value 50 Index Fund. This move marks an exciting development for investors seeking exposure to the Nifty 500 Value 50 Index, as the fund aims to track this index through an open-ended scheme.

Objective of Scheme

With Nemish Sheth at the helm as the Fund Manager, the objective of this scheme is crystal clear: to mirror the Nifty 500 Value 50 Index’s performance by investing in its constituent securities in the same proportion. The ultimate goal? Providing returns that closely align with the total return of the index, minus expenses. However, it’s crucial to note that while this objective is the aim, it’s not an ironclad guarantee. As with any investment, there are inherent risks and uncertainties.

Minimum Subscription to be collected by the Fund

To get the ball rolling, Bandhan Mutual Fund is looking to collect a minimum subscription of Rs. 5 crores. Any excess subscription collected will be retained by the fund. But what happens if the minimum subscription isn’t met during the New Fund Offer (NFO)? In such a scenario, investors need not worry, as refunds will be promptly issued within 5 Business Days from the closure of the NFO.

Scheme Specific Risk Factors

Now, let’s talk about risk. As with any investment linked to an index, the scheme’s performance is directly impacted by the Nifty 500 Value 50 Index. If for any reason the index ceases to exist, the Trustee reserves the right to make necessary modifications to the scheme. This could include transitioning to a different index or suspending tracking altogether until further notice. While such adjustments are made to ensure alignment with market conditions, they may introduce tracking errors during the interim period. 

Tracking errors, inherent in any index fund, can arise from various factors like market illiquidity, settlement delays, or changes in index composition. Though the scheme endeavors to mirror the index’s changes, this process may not always be instantaneous, leading to deviations in performance.

Moreover, being an open-ended scheme, the fund may hold cash or cash equivalents to meet redemption demands. However, market conditions like circuit filters, liquidity issues, or price volatility may hinder the fund’s ability to buy or sell securities as desired.

Considering these factors and more, it’s anticipated that the scheme may experience a tracking error within the range of 2% per annum from the benchmark. Yet, it’s crucial to recognize that actual tracking errors may vary from this projected range.

Lastly, for those considering derivatives investments like index futures, it’s essential to understand the associated risks. While the risk-reward profile may mirror that of a share portfolio, additional costs and settlement risks come into play. Additionally, the liquidity and depth of the index futures market, being relatively new, present their own set of challenges.

In essence, Bandhan Mutual Fund’s foray into the Nifty 500 Value 50 Index Fund offers investors a unique opportunity to gain exposure to this index’s performance. However, it’s imperative for investors to weigh the potential risks and rewards before diving in, ensuring their investment decisions align with their financial goals and risk tolerance.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.