Mirae Asset Mutual Fund has launched Mirae Asset Nifty MidSmall cap 400 momentum quality 100 ETF FOF. This Mirae Asset Nifty MidSmall cap fund is a first-of-its-kind product, which provides focused exposure to both midcap and smallcap stocks selected based on the combination of momentum and quality factors from the Nifty MidSmallcap400 Index.
Before jumping to the fund insights, let’s understand the underlying index.
Table of Contents
What is Nifty MidSmallcap400 Momentum Quality 100 index
As the name suggests, Nifty Midsmallcap 400 Momentum Quality 100 Index aims to track the performance of 100 stocks, of which 50 are midcaps and 50 are small-cap stocks. These stocks are selected based on the combination of momentum and quality factors from the Nifty Midsmallcap400 Index. Each Stock weights are capped at 5% only.
The momentum score for each company is determined based on its 6-month and 12-month price return, adjusted for volatility.
The quality score for each company is determined based on return on equity (ROE), financial leverage (Debt/Equity Ratio) and earnings (EPS) growth variability analyzed during the previous 5 years.
The weight of each stock in the index is based on the combination of the composite momentum-quality score and its free-float market capitalization.
Stock weights are capped at 5% at the time of index rebalancing.
Top 5 companies of Index
- REC Ltd. – 5.40%
- Power Finance Corporation Ltd.- 5.01%
- HDFC Asset Management Company Ltd.- 2.90%
- Supreme Industries Ltd. -2.81%
- Aurobindo Pharma Ltd. -2.6%
Last one year return from the index is 62.99%, last 5 year 27.59 & Since inception, it is 23.92%.
Read more about Nifty MidSmallcap400 Momentum Quality 100 index
https://www.niftyindices.com/Factsheet/Factsheet_NiftyMidSmallcap400MomentumQuality100.pdf
What is the stock selection & Exclusion Criteria?
The stock exclusion criteria as follows:
- Listing Criteria- If minimum listing history is less than 1 Yr.
- Circuit Filter Breaker-Non F&O stocks hitting upper or lower circuit on 25 days or more in 6 month
- Pledged Promoter Share –Percentage of pledged promotor’s share greater than 20%
- Low Average Daily Trading Value (ADTV)-Bottom 10 percentile stocks on ADTV basis in last 6 month
- Low Turnover Ratio-Bottom 10 percentile based on stock’s daily trading value relative to its free float market cap
Stock Selection Criteria : Quality Factor (1/2)
- Profitability – Return On Equity (ROE)
- Financial Health – Debt to Equity Ratio (D/E)
- Earning Quality – Earning Per Share (EPS) variability
- Short-term momentum (A/B) – Risk & Return for 6 Month (B)
- Long-term momentum (C/D)- Risk & Return for 12 Month (B)
What is FoF ( Fund of Fund )?
Fund of Fund of FoF is a Fund that invests money in another fund.
The Mirae Asset FOF is investing money in an underlying exchange-traded Fund i.e.Mirae Asset Nifty MidSmallcap400 Momentum Quality 100 index ETF (exchange-traded fund).
Since this fund is investing in ETF, is called a Fund of Fund.
Why a new Fund in mid-small cap 400 Momentum Quality 100 index?
The one obvious reason is to increase assets under management. Every new offering brings in some sensation in the market and new money is invested. Anyway, this is the story with all NFOs but why new funds in the midsmall cap ETF FoF.
A few apparent reasons that has led Mirae Asset Mutual Fund to come up with this Fund
The main reason may be the strong performance and projections of India’s mid & small cap industry. Let’s authenticate this with facts:
- First-of-its-kind product, which provides focused exposure to both midcap and smallcap stocks. These stocks are selected based on the combination of momentum and quality factors from the Nifty MidSmallcap400 Index.
- Smallcap and midcap segments expose companies to the early and high growth phases of their business cycle.
- The quality score for each company is determined based on Return on Equity (ROE), financial leverage (Debt/Equity Ratio) and earning (EPS) growth variability analysed during the previous 5 years.
- Nifty MidSmallcap400 Momentum Quality 100 index has generated 62.99% in the last year, 26.27% in the last 5 years and more than 23% since inception.
- A strong performance of the benchmark index i.e. Nifty MidSmallcap400 Momentum Quality 100 Total Returns Index
- Index rebalancing and reconstitution will be done on a semi-annual basis in June and December.
Mirae Asset Nifty MidSmallcap400 Momentum Quality 100 ETF Fund of Fund -Details
Minimum Investment – the minimum subscription amount required is Rs 5000 and in multiples of Re 1 thereafter.
Minimum SIP – Rs 500 in multiples of Re 1 thereafter
Investment Objective– Long-term capital appreciation via investing in equity and equity-related instruments.
Category – Mid & Small Cap Fund
Exit Load:
If redeemed within 3 months from the date of allotment: 0.50%
If redeemed from 3 months from the date of allotment: NIL
Fund Manager– Vishal Singh and Ekta Gala
Mr. Vishal Singh has over 5 years of experience in the field of financial services. He has been associated with the AMC since June 2020.
Before Mr. Singh was associated with NSE Indices Limited. he was involved in index products development and valuation of Indian fixed-income securities.
Mr. Singh also has an experience covering global fixed-income securities as an analyst for Aranca (India) Private Limited.
C.A.; C.F.A; F.R.M; B.Com / 29 Years
Advantages and Disadvantages
By investing in the Mirae Asset FoF fund, one can take advantage of investing in a
- Midsmallcap category which may improve return and risk profile
- Adding quality and momentum factors have aided in improving return-to-risk profile of mid & smallcap segment vis-à-vis market cap based mid & smallcap index
- Midcap & Smallcap segments have many industries that are not present in the large-cap universe
- Seek to invest in emerging leaders across different segment
- Mid and smallcap companies may become large caps of tomorrow!
- Midcap and smallcap companies may be considered to have potential to create wealth in the long run.
- Factor based selection may address certain concerns and target a desired risk-return profile
- Nifty MidSmallcap400 Momentum Quality 100 Index aims to capture wealth magnifiers and preservers which may create alpha in the long run ( Captured by Quality and Momentum Factor)
- The Fund invests money in 100 stocks (Top 50 Midcap + Top 50 Smallcap stocks)
- By capturing 50 midcap stocks and 50 small cap stocks, historically Nifty Midsmallcap400 Momentum Quality 100 Index has given exposure of around 70%-80% to midcap and 20%-30% to small cap stocks
- Nifty MidSmallcap400 Momentum Quality 100 Index (MSMQ) portfolio constituents have lower debt-to-equity ratios
- Nifty MidSmallcap400 Momentum Quality 100 Index has done relatively better than its parent index and Nifty 50 index
This fund may perform nicely based on the factors given above.
On the other hand, there are a lot of drawbacks, the majority of which are standard drawbacks associated with every new fund offer of a scheme; these include:
- No track record – Since the fund is new. No track record of the fund’s performance.
- The pPast performance- The performance of an underlying index is no guarantee of future returns
- Mid Small cap investment – these investments are highly risky and performance depends on many factors.
- The scheme may not be suitable for every investor’s portfolio
- Highly specific funds – possess higher risk as compared to diversified funds
Should you buy Mirae Asset Nifty MidSmallcap400 Momentum Quality 100 Index FOF fund ?
This fund is suitable for Aggressive investors targeting long-term capital appreciation by investing in mid & small cap selective stocks. Since it is a midsmall cap fund, it possesses higher risk compared to other equity mutual funds.
Suitable for people who want to take higher risks to get some better returns than other funds. People with low/moderate-risk appetite and who are dependent on the maturity of the fund should AVOID investing in the fund.
