DSP Investment Managers announced the launch of the first passive product in the Indian mutual fund industry based on Nifty Midcap 150 Quality 50 Index â€“ the DSP Nifty Midcap 150 Quality 50 ETF, along with the DSP Nifty 50 ETF. This new quality-focused mid cap ETF offers investors an option to invest in quality mid-cap companies with the potential of higher profitability, lower leverage & relatively stable earnings. The second new product, DSP Nifty 50 ETF will invest in all the 50 companies from the Nifty 50 Index in line with the index. Here is a detailed look.
DSP Nifty Midcap 150 Quality 50 ETF follows a zero-bias, rule-based strategy by replicating the Nifty Midcap 150 Quality 50 Index, without fund manager ‘thinking’ or emotions involved. This index selects 50 companies from the parent Nifty Midcap 150 index based on â€˜Quality Scoresâ€™ using metrics like return on equity, financial leverage (except for financial services companies) & earning per share (EPS) growth variability of each stock analysed during the previous 5 financial years. The ETF therefore offers investors a simple way to own the potential leaders of tomorrow, which gives them a chance to ‘earn big’ returns by utilizing this high-risk, high-return strategy. Being a passive fund, it will also have a lower expense ratio than most actively managed mid-cap funds.
DSP Nifty 50 ETF replicates the Nifty 50 Index, which follows a market-cap weighted strategy. In other words, each company in the portfolio is assigned weights based on free-float market capitalization. The DSP Nifty 50 ETF is suitable for those new to the stock markets or beginner-level MF investors. Experienced investors who are looking for lower-cost approaches to investing in the equity market can also consider investing in the ETF.
“Our analysis shows that while ~12-14% mid- caps successfully grow over cycles & become large, there is risk of stagnation and de-growth for most others. Most of them remain small or mid- caps. The characteristics of those that generate superior returns are the ones that have high ROE, run their business with low debt & have relatively stable profit growth. The DSP Nifty Midcap 150 Quality 50 ETF is designed with these principles. Out of the mid cap index, it only chooses companies which qualify on these metrics. Our investors can build their portfolio of mid – caps with such a disciplined design that reduces the risk of weak businesses from the overall index” says Kalpen Parekh, MD & CEO, DSP Investment Managers.
“Through these two new ETFs, DSP continues to dive deeper into the passive space, offering investors more affordable, rule-based, zero-bias strategies that focus on keeping things really simple. These are scientific and hassle-free options that can help one plan for long-term goals,” says Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Investment Managers.
Should you invest?
DSP Nifty Midcap 150 Quality 50 ETF is a midcap product. As a thumb-rule, investors with some risk appetite can go for midcaps.
If you dont have the stomach for it, go for DSP Nifty 50 ETF. ETFs offer low-cost investment opportunities and passive funds should be part of your portfolio, especially the largecap part of your equity portfolio.